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					                                  Press Release
                 (embargoed until 4:15 p.m. on 21 November 2006)
                 Economic Situation in the Third Quarter of 2006
                  and Latest GDP and Price Forecasts for 2006

The Government released today (Tuesday) the Third Quarter Economic Report
2006, together with the preliminary figures on Gross Domestic Product for the third
quarter of 2006.

The Acting Government Economist, Mrs Helen Chan, described the economic
situation in the third quarter of 2006 and provided the latest GDP and price forecasts
for the year.

MAIN POINTS

∗   The Hong Kong economy gathered strong momentum again in the third quarter
    of 2006, with GDP expanding briskly by 6.8% in real terms, up distinctly from a
    5.5% increase in the second quarter (figure revised up from the earlier estimate
    of 5.2%). This signified the twelfth consecutive quarter of distinctly
    above-trend growth since the current upturn began in mid-2003.

∗   External trade regained vigor in the third quarter after some moderation in the
    second quarter. Merchandise exports resumed a faster growth of 8.9% in real
    terms in the third quarter over a year earlier, thanks to thriving trade flows of the
    Mainland and the renewed weakening of the US dollar in recent months.
    Exports of services likewise grew strongly, by 8.6% in real terms, along with
    vibrant offshore trade and buoyant financial market activities during the quarter.

∗   Domestic demand continued to play an important role in the current economic
    upturn. Private consumption expenditure rose notably further by 4.4% in real
    terms in the third quarter, on the back of upbeat consumer sentiment and an
    improving labour market. Overall investment expenditure surged by 12.7% in
    real terms in the third quarter, the fastest since the fourth quarter of 2000,
    underlining the strength of business confidence and also sustained business
    expansion in the corporate sector. While overall building and construction
    activity continued to be dragged down by the sharp fall in public sector output,
    private sector output seemed to have stabilized over the past two quarters.

∗   With robust economic expansion transpiring into broad-based job creation, the
    labour market continued to show extensive improvements recently. Some
    311 000 additional jobs have been created since the trough in 2003, bringing the
    seasonally adjusted unemployment rate down to a 64-month low of 4.5% in the
    three months ending October. The number of long-term unemployed has fallen
    by 55%.
                                          - 2 -

∗   The outlook for the remainder of 2006 is for a further expansion in economic
    activity at a solid pace. Externally, despite the economic slow-down in the US,
    the economic situation elsewhere is still very favourable. The vibrant Mainland
    economy and its surging trade flows, in particular, will continue to provide the
    main impetus to Hong Kong’s trade growth. Economic recovery in the euro
    area and Japan remains on track. The recent easing in oil prices and the pause
    in interest rate hikes in the US will also help to reduce some downside risks to
    the global economy. Against this background, Hong Kong’s external trade
    looks set for further growth in the fourth quarter, particularly with the additional
    boost from a weak US dollar.

∗   Domestic demand has been gathering strength over the past few quarters, and
    this trend is likely to extend into the fourth quarter. Consumer demand should
    continue to hold up well under the support of rising household incomes, lower
    local interest rates and the positive wealth effect from the recent stock market
    rally. The prevailing business confidence is likewise strong, which should
    provide the favourable ground for a further surge in machinery and equipment
    investment. Construction activity, though likely to remain weak in the near
    term, might also show some relative improvement if private sector activity can
    continue to stabilise.

∗   In the light of an exceptionally strong GDP outturn of 6.8% growth for the first
    three quarters of 2006, and even after allowing for some possible moderation in
    external trade in the fourth quarter, the forecast GDP growth for 2006 as a
    whole is revised upward from 4-5% to 6.5% in the current update.

∗   CPI inflation has remained moderate so far this year and is likely to remain so
    through to the year-end given the substantial easing in oil prices lately and also
    continued notable growth in labour productivity. With the actual outturn of the
    Composite CPI in the first ten months of 2006 in line with expectations, the
    forecast rate of increase in the Composite CPI for 2006 as a whole is maintained
    at 2%. The forecast rate of change in the GDP deflator for 2006 as a whole is
    likewise kept unchanged at 0%.

                                  -----------------------
                                        - 3 -


DETAIL

GDP

        According to the preliminary figure on the Gross Domestic Product (GDP)
released today by the Census and Statistics Department, GDP grew strongly by
6.8% in real terms in the third quarter of 2006 over a year earlier. This was not only
the twelfth consecutive quarter that economic growth was distinctly above the trend
growth of 3.9% in the past ten years, it was also considerably up from the 5.5%
growth in the second quarter (revised up from the earlier estimate of 5.2%). On a
seasonally adjusted quarter-to-quarter comparison, the pace of economic expansion
likewise accelerated notably, to 3.5% in real terms in the third quarter of 2006 from
0.3% in the second quarter (revised up from the earlier estimate of virtually no
growth) (Chart).
2.      The latest figures on GDP and its major expenditure components up to the
third quarter of 2006 are presented in Table 1. Developments in different segments
of the economy in the third quarter of 2006 are described below.

External trade

3.      Exports regained vigor in the third quarter after some moderation in the
second quarter, supported by the pick-up in Mainland’s already strong trade flows
during the quarter, surging intraregional trade flows and also the renewed
weakening of the US dollar over the past few months. Total exports of goods
picked up to an 8.9% growth in real terms in the third quarter over a year earlier, up
from a 6.4% increase in the preceding quarter. On a seasonally adjusted quarter-to-
quarter comparison, total exports of goods expanded by 6.4% in real terms in the
third quarter, following a slight 1.1% decline in the preceding quarter.

4.      Export performance varied across regions. The Mainland market continued
to be the key growth spot, under the support of a rapidly growing Mainland
economy and its vibrant trade flows. Exports to other Asian markets such as
Taiwan, Singapore and Korea also attained strong growth of close to or exceeding
10%, in tandem with their generally strong import demand and the buoyant intra-
regional trade. Yet exports to Japan slowed down further, dragged by the weakness
of the yen. Export performance to markets outside Asia was not as impressive.
Exports to the EU showed only a modest increase, again partly due to dampening
effect of the earlier weakening of the euro. Exports to the United States were
likewise weak, partly due to a slowing US economy, and conceivably also due to the
drag from the on-going shift to offshore trade.

5.      Exports of services maintained strong growth at 8.6% in real terms in the
third quarter, broadly similar to the increase in the second quarter. Exports of trade-
related services were bolstered by buoyant trade flows of the Mainland, while
exports of transportation services sustained strong growth in tandem with the faster
                                        - 4 -

trade growth. Exports of financial and insurance services also attained near
double-digit growth amidst the more active financial market activities. Yet the
momentum in exports of travel services slowed upon a somewhat less rapid growth
in incoming visitors. On a seasonally adjusted quarter-to-quarter comparison,
exports of services expanded briskly by 4.3% in the third quarter, after a 2.2%
increase in the preceding quarter.

Domestic sector

6.      Domestic demand continued to hold up very well in the third quarter.
Local consumer spending rose solidly further in the third quarter, amidst improving
employment income, expanding job opportunities and a buoyant stock market. A
more stable property market, together with the pause in interest rate hikes, also
helped. Private consumption expenditure (PCE) attained a solid growth of 4.4% in
real terms in the third quarter over a year earlier, further to growth of 4.5% and
5.1% in the first two quarters. On a seasonally adjusted quarter-to-quarter
comparison, private consumption expenditure increased by 0.5% in real terms in the
third quarter, following a 1.2% growth in the second quarter.

7.      Overall investment spending accelerated markedly to double-digit growth at
12.7% in real terms in the third quarter over a year earlier, marking the fastest
growth since the fourth quarter of 2000. Machinery and equipment investment,
which surged by 22.4%, was the key driver of overall investment growth, reflecting
the strong business confidence. Activity in the construction sector remained weak
in overall terms, as public sector output continued to fall sharply. On the other hand,
the decline in output in the private sector segment seemed to have been largely
arrested in the past two quarters.

The labour sector

8.       The labour market continued to experience broad-based improvement.
Strong expansion in labour demand pushed total employment to successive new
highs over the past few months, bringing the seasonally adjusted unemployment rate
down to 4.7% in the third quarter, and further down to a 64-month low of 4.5% in
August - October. Since the trough in mid-2003, some 311 000 additional jobs have
been created, leading to a significant improvement in employment conditions for
workers at different skill levels. At the same time, the long-term unemployment
situation continued to improve, most apparently in the manufacturing and
construction sectors. The total number of job vacancies in the private sector
remained on a broad-based rise in June 2006 over a year ago, while labour incomes
continued to rise modestly in overall terms.

Prices

9.       Along with the sustained economic expansion, consumer price inflation in
terms of the year-on-year rate of increase in the Composite Consumer Price Index
(CCPI) edged slightly higher to 2.3% in the third quarter, from 2.0% in the second
                                       - 5 -

quarter. (In October, the CCPI inflation was 2.0%, giving an average of also 2.0%
for the first ten months taken together.) On the domestic front, upward pressures on
local business costs remained largely in check, with unit labour cost kept down by
rising productivity, and with the increase in unit rental cost also stabilizing in
tandem with some softening in shop rentals lately. External cost pressures were
likewise modest. On a seasonally adjusted quarter-to-quarter comparison, the CCPI
rose by 0.6% in the third quarter, following a 0.9% increase in the second quarter.
With regard to the GDP deflator, it continued to register a marginal decline, at 0.2%
in the third quarter over a year earlier, after a 0.1% decline in the second quarter.
This was entirely due to the drag from the continued fall in the terms of trade.
Excluding the relative price movements of exports and imports, the domestic
demand deflator rose by 2.1% in the third quarter, broadly in line with the rate of
consumer price inflation.

Latest GDP and price forecasts for 2006

10.     Although the external environment has been overshadowed by a number of
downside risks since early this year, including most notably the surge in oil prices
and a slowing US economy, so far the global economy as a whole has continued to
forge ahead seemingly with much resilience against these possible shocks. This was
largely underscored by a robust Mainland economy, and also continued strength in
Japan and the EU economies. The pause in interest rate hikes in the US and the
substantial ease back in oil prices are other favourable developments in the global
scene, which together with the weakness of the dollar, should support Hong Kong’s
exports of goods and services in the near term and help to cushion against the
negative impact of slowing US demand.

11.      Domestically, despite successive interest rate hikes since 2005, domestic
demand has held up very well. This trend is expected to extend into the fourth
quarter. The macro conditions, which were already supportive to consumer demand
over the past few quarters, seem to have improved even further lately, with the
abundant liquidity in the banking sector leading to the latest fall in local interest
rates, an improving job market, and even more upbeat economic sentiment with the
stock market rally lately. Also, a sanguine business outlook should continue to bode
well for business investment in machinery and equipment. Activity in the
construction sector, though likely to remain weak in overall terms, might also stage
some relative improvement, now that private sector output has largely arrested its
downslide.

12.      On the back of a strong GDP outturn of 6.8% growth for the first three
quarters of 2006, and after allowing for some possible moderation in trade because
of a likely slowing US demand in the fourth quarter, the forecast GDP growth for
2006 as a whole is revised upwards from 4-5% to 6.5% in the current update (Table
2). For comparison, the forecasts of Hong Kong’s GDP growth by a selection of
international organisations and local analysts are summarised in Table 3.
                                       - 6 -

13.     As to the outlook for consumer price inflation, it is expected to remain
moderate in the remainder of 2006, being capped by rising productivity and
continued capacity expansion, and with the substantial easing in oil prices lately as
another favourable development. With the actual outturn of the first ten months of
2006 in line with expectations, the forecast rate of increase in the CCPI for 2006 as
a whole is maintained at 2%. As to the forecast rate of change in the GDP deflator
for 2006 as a whole, it is likewise kept unchanged at 0%.

(The Third Quarter Economic Report 2006 is now available. Users can download
the publication free of charge at http://www.statisticalbookstore.gov.hk or
http://www.info.gov.hk/hkecon/report. Print version of the report can also be
purchased on-line, or by calling the Publications Sales Unit of ISD at 2537 1910.
The hard copy of the report is available for sale at $68 per copy (15% discount
offered if purchased on-line), with a postage charge.)

(The GDP figures up to the third quarter of 2006 are published in the Report of the
Gross Domestic Product, Third Quarter 2006. Users can download the publication
free of charge at http://www.statisticalbookstore.gov.hk. Print version of the report
can also be purchased on-line, or by calling the Publications Sales Unit of ISD at
2537 1910. The hard copy of the report is available for sale at $36 per copy (15%
discount offered if purchased on-line), with a postage charge.)
                           Hong Kong's Gross Domestic Product
      Percent
16

14

12
                                                              Year-on-year rate
10                                                         of change in real terms
 8

 6
                                                 Seasonally adjusted
 4                                             quarter-to-quarter rate of
                                                 change in real terms
 2

 0

-2

-4
     Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3*
         2001        2002        2003        2004        2005      2006
     Note :   (*) Preliminary figures.
                                                      Table 1
              Gross Domestic Product and its main expenditure components
                             and the main price indicators
                           (year-on-year rate of change (%))

                                       2004    2005                      2005                              2006
                                                        Q1        Q2            Q3      Q4       Q1      Q2#      Q3+
 Change in real terms of GDP and
its main expenditure components (%)
Private consumption                     7.3     3.4       4.1        2.4       3.6       3.4      4.5      5.1      4.4
  expenditure                                           (0.4)      (0.5)     (1.3)     (0.9)    (1.6)    (1.2)     (0.5)
Government consumption                  0.7    -3.1       -4.6      -2.3      -1.6       -3.8     1.2      -1.5    -1.0
 expenditure                                            (-2.6)    (-0.7)     (0.3)     (-1.0)   (2.6)    (-3.1)    (0.7)
Gross domestic fixed                    3.0     4.1       0.4       4.9          2.8     8.4      7.6      5.0     12.7
 capital formation                                     (N.A.)     (N.A.)    (N.A.) (N.A.) (N.A.) (N.A.)           (N.A.)

  of which :
  Building and construction            -11.7   -6.1      -1.0       -7.5        -5.2   -10.7    -11.1     -3.7     -5.7
  Machinery, equipment and              11.0   10.6       0.8      10.7          7.1    24.0     23.3     12.8     22.4
   computer software
Total exports of goods                 15.3    11.2       8.9      11.1      12.8      11.4     14.4        6.4     8.9
                                                        (0.1)      (6.0)     (3.1)     (2.2)    (2.2)    (-1.1)    (6.4)
Imports of goods                       14.1     8.6       3.8        7.0     11.0      12.0     14.0        6.7     8.5
                                                        (1.9)      (5.1)     (2.2)     (2.6)    (3.3)    (-1.6)    (4.7)
Exports of services                    17.9     8.7       8.7        9.1       8.9       8.2      8.9       9.0     8.6
                                                        (0.4)      (2.4)     (4.3)     (1.1)    (0.8)     (2.2)    (4.3)
Imports of services                    14.6     2.9        6.0      -0.1       3.5        2.3     4.9      8.3      5.5
                                                        (-2.1)     (3.7)     (0.7)     (-0.3)   (1.0)    (6.8)    (-2.1)
Gross Domestic Product                   8.6    7.3       6.0        7.2       8.2       7.5      8.0      5.5      6.8
                                                        (1.6)      (2.8)     (2.2)     (0.6)    (2.2)     (0.3)    (3.5)

Change in the main
price indicators (%)
GDP deflator                            -3.6   -0.2      -1.4       -0.6         0.2     0.7      -0.1    -0.1     -0.2
                                                        (0.1)      (0.2)         (*)   (0.5)    (-0.9)   (0.2)     (0.1)
Composite Consumer Price               -0.4    1.0@      0.4@      0.8@         1.4@    1.3@  1.6@ 2.0@             2.3@
 Index                                                    (*) @    (0.4)@            @     @
                                                                                (0.3) (0.6) (0.3)@ (0.9)@          (0.6)@
Change in nominal GDP (%)               4.7     7.0       4.6       6.6          8.4     8.2      7.9      5.4      6.6


Notes : Figures are subject to revision later on as more data become available.
        (#)     Revised figures.
        (+)     Preliminary figures.
        ( )     Seasonally adjusted quarter-to-quarter rate of change.
        N.A.    Not applicable, as no clear seasonal pattern is found in gross domestic fixed capital formation,
                due to the presence of considerable short-term fluctuations.
        (@)     By reference to the new 2004/05-based CPI series.
        (*)     Change of less than 0.05%.
                                 Table 2

                       Economic forecasts for 2006
                    (year-on-year rate of change (%))




                                             Forecasts        Latest
                                             for 2006       forecasts
                                            as released     for 2006
                                           on 22.8.2006   on 21.11.2006
                                                (%)            (%)

Gross Domestic Product (GDP)
   Real GDP                                   4 to 5          6.5
   Nominal GDP                                4 to 5          6.5
Composite Consumer Price Index                  2              2

GDP Deflator                                    0              0
                                                      Table 3
                         2006 GDP and price forecasts for Hong Kong put out by
                     selected international organisations and private sector analysts

                                            Gross
                              Private     Domestic      Total              Rate of change
                Date        consumption fixed capital Exports Exports       in consumer               Reference
             of release GDP expenditure   Formation   of goods of services      prices                 source
                             ( growth rate in real terms (%) )                   (%)
International organisations:
IMF           Jan        5.5      --           --         --        --            1.5       Staff Report for the 2005
              2006                                                                          Article IV Consultation
                                                                                            Discussions, 6 Jan 2006.
              Apr        5.5      --           --         --        --            1.8       World Economic Outlook,
              2006                                                                          Apr 2006.
              Sep        6        --           --         --        --            2.3       World Economic Outlook,
              2006                                                                          Sep 2006.
              Oct        5.5-6    --           --         --        --           --         Preliminary Conclusions of
              2006                                                                          the IMF Mission,
                                                                                            24 Oct 2006.
ADB           Apr        5.5      --           --         --        --            2.5       Asian Development Outlook
              2006                                                                          2006, Apr 2006.
              Sep        6.5      --           --         --        --            2.4       Asian Development Outlook
              2006                                                                          2006 Update, Sep 2006.
World Bank    Mar        5.3      --           --         --        --           --         East Asia Update, Mar 2006.
              2006
PECC          Nov        6.3      2.1          --         --        --            2         State of the Region
              2006                                                                          2006-2007, Nov 2006.

Private sector analysts:
(a) Major local banks
HSBC          Apr        5.5      3.2         2.5         --        --            2.2       Global Economics,
              2006                                                                          Q2 2006.
              Jun        6.4      3.5         5.8         --        --            2.3       Asian Economics,
              2006                                                                          22 Jun 2006.
              Oct        6.4      4.4         6.4         --        --            2.2       Macro Currencies,
              2006                                                                          October 2006.
Standard      Feb        6        --           --         --        --            2.5       On The Ground - Asia,
Chartered     2006                                                                          21 Feb 2006.
Bank
              Aug        7        --           --         --        --            2.5       Asia Focus,
              2006                                                                          16 Aug 2006.
              Nov        7        --           --         --        --            2.5       Asia Focus,
              2006                                                                          15 Nov 2006.
Hang Seng     Dec        5.3      3           2           8.5       6.4           2.3       Hang Seng Economic
Bank          2005                                                                          Monthly, Nov/Dec 2005.
              May        5.3      --           --         --        --            2.2       Hang Seng Bank,
              2006                                                                          16 May 2006.
              Jun        6.3      3.6         4.4        10.5       6.2           2.3       Hang Seng Economic Monthly,
              2006                                                                          May/June 2006.
              Nov        6.3      --           --         --        --            2.1       Economic Bulletin,
              2006                                                                          Nov 2006.
                                                  Table 3 (cont’d)
                          2006 GDP and price forecasts for Hong Kong put out by
                      selected international organisations and private sector analysts
                                              Gross
                                 Private     domestic     Total              Rate of change
                  Date        consumption fixed capital Exports Exports       in consumer             Reference
               of release GDP expenditure   formation   of goods of services      prices               source
                               ( growth rate in real terms (%) )                   (%)
Bank of        Dec         5          3.3         3          8.5       8            2.5       Economic Review Monthly,
China (HK)     2005                                                                           Dec 2005.
               May         6.5        4.2         6.8       10.5      8.6           2.2       Economic Review,
               2006                                                                           26 May 2006.
               Nov         6.5       --          --          --        --           2.2       Bank of China (HK),
               2006                                                                           15 Nov 2006.
Bank of East   Jan         5.2        4.5         1          9         6            2.5       Economic Analysis,
Asia           2006                                                                           Jan 2006.
               May         5.8       --          --         --         --          --         Sing Tao Daily,
               2006                                                                           25 May 2006.
               Aug         5.8       --          --         --         --           2.3       Bank of East Asia,
               2006                                                                           16 Aug 2006.
               Nov         5.8       --          --         --         --           2.1       Bank of East Asia,
               2006                                                                           16 Nov 2006.
ABN Amro       Feb         4.5       --          --          --        --           3         Asia Vision,
Bank           2006                                                                           10 Feb 2006.
               May         5.5       --          --          --        --           2.5       Asia Vision,
               2006                                                                           12 May 2006.
               Aug         6         --          --          --        --           2.5       Asia Vision,
               2006                                                                           11 Aug 2006.
               Aug         5.5       --          --          --        --           2.5       Asia Vision,
               2006                                                                           24 Aug 2006.
               Nov         5.5       --          --          --        --           2.6       Asia Vision,
               2006                                                                           3 Nov 2006.
               Nov         5.5       --          --          --        --           2.2       Asia Vision,
               2006                                                                           17 Nov 2006.
Citigroup      Feb         5         --          --          --        --           2.8       Hong Kong Economics,
               2006                                                                           9 Feb 2006.
               May         5.7        3.8         3.8       10.6       8.2          2.6       Hong Kong Economics,
               2006                                                                           17 May 2006.
               July        5.7        4.3         3.4        --       --            2.2       Asia Economic Outlook and
               2006                                                                           Strategy, 24 Jul 2006.
               Nov         6         --          --         --         --           2.1       Citigroup,
               2006                                                                           17 Nov 2006

(b) Investment bank
JP Morgan      Feb         5.7       --          --         --         --           2         JP Morgan Chase,
Chase          2006                                                                           16 Feb 2006.
               May         5.8       --          --         --         --           2.2       JP Morgan Chase,
               2006                                                                           16 May 2006.
               May         6         --          --          --        --          --         Sing Tao Daily,
               2006                                                                           25 May 2006.
               Aug         6         --          --          --        --           2.2       JP Morgan Chase,
               2006                                                                           21 Aug 2006.
               Nov         5.8       --          --         --         --           2.2       JP Morgan Chase,
               2006                                                                           16 Nov 2006.
                                                  Table 3 (cont’d)

                        2006 GDP and price forecasts for Hong Kong put out by
                    selected international organisations and private sector analysts
                                               Gross
                                  Private     domestic     Total              Rate of change
                   Date        consumption fixed capital Exports Exports       in consumer               Reference
                of release GDP expenditure   formation   of goods of services      prices                 source
                                ( growth rate in real terms (%) )                   (%)
Goldman         Jan        5.4        --          --          --        --           2.8       Hong Kong Economic
Sachs Asia      2006                                                                           Journal, 3 Jan 2006.
                Feb        5.8        --          --         --         --           2.4       Asia-Pacific Economics Flash,
                2006                                                                           6 Feb 2006.
                May        6.2        --          --         --         --          --         Sing Tao Daily,
                2006                                                                           25 May 2006.
                Aug        6.2         4.9        5.8        --         --           2.6       Asia Economics Flash,
                2006                                                                           10 Aug 2006.
Morgan          Nov        5           3           3          --        --           2         Hong Kong Economics,
Stanley         2005                                                                           28 Nov 2005.
Asia
                May        5          --          --         --         --           2         Morgan Stanley Asia,
                2006                                                                           16 May 2006.
                Aug        5.6         4           5          --        --           2.3       Morgan Stanley Research,
                2006                                                                           23 Aug 2006.
Merrill         Jan        6          --          --          --        --           3.9       The Asian Market
Lynch           2006                                                                           Economist, 16 Jan 2006.
                Aug        6          --          --          --        --           2.1       The Asian Market
                2006                                                                           Economist, 16 Aug 2006.
                Nov        5.1        --          --         --         --           2.3       The Asian Market
                2006                                                                           Economist, 16 Nov 2006.
Credit Suisse   Jan        4.7         3.6         2.5        --        --           2.6       Asian Daily, 10 Jan 2006.
                2006
                Mar        5           4.2         3          --        --           2.3       Global Emerging Markets
                2006                                                                           Outlook, Q2 2006,
                                                                                               24 Mar 2006.
                Jul        5.9         4.6         4          --        --           2.2       Emerging Markets,
                2006                                                                           Q3 2006, 5 Jul 2006.
Lehman          Feb        5.5        --          --         --        --            3.4       Asia Ex-Japan Weekly
Brothers        2006                                                                           Economic Monitor,
                                                                                               10 Feb 2006.
                May        6          --          --         --        --            3         Global Weekly Economic
                2006                                                                           Monitor, 16 May 2006.
                Aug        5.8        --          --         --        --            2.3       Global Weekly Economic
                2006                                                                           Monitor, 16 Aug 2006.
                Nov        6.1        --          --         --        --            2.3       Global Weekly Economic
                2006                                                                           Monitor, 10 Nov 2006.
                                                     Table 3 (cont’d)

                        2006 GDP and price forecasts for Hong Kong put out by
                    selected international organisations and private sector analysts
                                               Gross
                                  Private     domestic     Total              Rate of change
                   Date        consumption fixed capital Exports Exports       in consumer                     Reference
                of release GDP expenditure   formation   of goods of services      prices                       source
                                ( growth rate in real terms (%) )                   (%)
(c) Others
Economist       May        5.3          3.8           4           --         --              1.9      Country Forecast,
Intelligence    2006                                                                                  May 2006.
Unit
                Jun        6            3.9           4           --         --              1.8      Country Forecast,
                2006                                                                                  Jun 2006.
                Jul        6.2          4.4           4           --         --              2.1      Country Forecast,
                2006                                                                                  Jul 2006.
                Aug        6.1          5.4           4           --         --              2.1      Country Forecast,
                2006                                                                                  Aug 2006.
                Sep        5.9          4.7           4.9         --         --              2.1      Country Forecast,
                2006                                                                                  Sep 2006.
                Nov        5.9          4.7           4.9         --         --              2.1      Country Forecast,
                2006                                                                                  Nov 2006.
Hong Kong       Dec        3.5          --           --           --         --              2.5      Hong Kong Economic
General         2005                                                                                  Forecast, HKGCC,
Chamber of                                                                                            2 Dec 2005.
Commerce
                Feb        4            --           --           --         --              2.5      HKGCC,
                2006                                                                                  14 Feb 2006.
                May        4.5          --           --           --         --              2        HKGCC,
                2006                                                                                  16 May 2006.
                Jun        5.5          --           --           --         --             --        Wen Wei Po,
                2006                                                                                  14 Jun 2006.
                Aug        6.5          --           --           --         --              2.5      HKGCC,
                2006                                                                                  17 Aug 2006.
                Nov        6.5          --           --           --         --              2.3      HKGCC,
                2006                                                                                  17 Nov 2006.
University of   Jan        5            --           --           --         --              2.5      RTHK Online News,
Hong Kong       2006                                                                                  5 Jan 2006.
                Apr        5-6          --           --           --         --            2.5 - 3    Sing Tao Daily,
                2006                                                                                  7 Apr 2006.
                Jul        6.5          --           --           --         --              2        RTHK on internet,
                2006                                                                                  7 Jul 2006.
                Oct        5.7          4.8           5           --         --             2.2       HK Economic Times,
                2006                                                                                  11 Oct 2006.
Federation      Jan       5 - 5.5       --           --           --         --             --        Press release,
of Hong         2006                                                                                  11 Jan 2006.
Kong
Industries
                Jul       6.5 - 7       --           --          10          --             --        Press Release,
                2006                                                                                  27 Jul 2006.

Observation :
The forecasts of GDP growth in real terms for 2006 from the private sector analysts listed above are mostly in the range of 6 to
6.5%, averaging at 6.3%.
 THIRD QUARTER ECONOMIC
        REPORT 2006




           ECONOMIC ANALYSIS DIVISION
ECONOMIC ANALYSIS AND BUSINESS FACILITATION UNIT
          FINANCIAL SECRETARY’S OFFICE
              GOVERNMENT OF THE
    HONG KONG SPECIAL ADMINISTRATIVE REGION


                  November 2006
                                       CONTENTS
                                                                       Paragraphs
CHAPTER 1: OVERVIEW OF ECONOMIC PERFORMANCE
  Overall situation                                                    1.1   -       1.6
  Net output or value added by major economic sector                       1.7
  Some highlights of economic policy                                   1.8   -       1.9

CHAPTER 2: THE EXTERNAL SECTOR
  Visible trade
      Total exports of goods                                           2.1      -    2.5
      Imports of goods                                                        2.6
  Invisible trade
      Exports of services                                                  2.7
      Imports of services                                                  2.8
  Visible and invisible trade balance                                      2.9
  Trade policy and other developments                                  2.10 -        2.12
  Box 2.1 Offshore trade and the Mainland’s external trade


CHAPTER 3: DEVELOPMENTS IN SELECTED SECTORS
  Property                                                             3.1     -     3.4
  Land                                                                 3.5     -     3.6
  Tourism                                                              3.7     -     3.10
  Logistics and maritime                                               3.11    -     3.16
  Creativity and innovation                                            3.17    -     3.19
  Box 3.1 Methodology of compiling property price and rental indices

CHAPTER 4: THE FINANCIAL SECTOR
  Overall situation                                                    4.1      -    4.2
  Interest rates, aggregate balance and exchange rates                 4.3      -    4.6
  Money supply and deposits                                            4.7      -    4.8
  Loans and advances                                                          4.9
  Banking                                                              4.10     -    4.12
  The debt market                                                      4.13     -    4.14
  The stock and futures markets                                        4.15     -    4.18
  Fund management and investment funds                                 4.19     -    4.20
  Insurance                                                                   4.21
CHAPTER 5: THE LABOUR SECTOR
  Overall labour market situation                    5.1
  Total employment and labour supply             5.2   -     5.3
  Profile of unemployment                        5.4   -     5.5
  Profile of underemployment                         5.6
  Profile of employment in establishments        5.7   -     5.8
  Vacancies                                      5.9   -     5.10
  Earnings and wages                             5.11 -      5.16
  Box 5.1 Recent trends of part-time employees

CHAPTER 6: PRICES
  Consumer prices                                6.1     -   6.2
  Costs of factor inputs                         6.3     -   6.4
  Output prices                                        6.5
  GDP deflator                                         6.6
  Box 6.1 Fuel prices and the terms of trade

STATISTICAL APPENDIX
    CHAPTER 1 : OVERVIEW OF ECONOMIC PERFORMANCE


Summary

  The Hong Kong economy gathered strong momentum again in the third
  quarter, with GDP expanding briskly by 6.8% in real terms. This not only
  marked the twelfth consecutive quarter of above-trend growth, the growth
  pace in the third quarter was also distinctly faster than the revised 5.5% in
  the second quarter.

  Merchandise exports regained much vigor on entering the third quarter,
  after some moderation in the preceding quarter. The dampening effect of
  slowing US economy had been more than offset by the Mainland’s robust
  trade flows and surging intra-regional trade.      Exports of services
  sustained fairly strong growth, bolstered mainly by continued brisk
  expansion of offshore trade.

  Domestic demand continued to display strength. Consumer demand grew
  solidly further, on the back of the broad-based improvement in labour
  market conditions. But the rally in the stock market and a more stable
  property market, in turn boosted by the pause in interest rate hikes, have
  rendered an additional boost to consumer spending.

  Investment in machinery and equipment continued to surge, reflecting the
  underlying strong business confidence. Yet construction activity remained
  weak in overall terms, dragged by distinct fall-off in public sector output.
  Construction output in the private sector actually showed some
  improvement over the past two quarters.

  Sustained economic expansion has transpired into broad-based job
  generation, benefiting workers at different skilled levels across different
  sectors. Some 307 000 additional jobs had been created since the trough
  in 2003, thereby pushing the seasonally adjusted unemployment rate down
  to a 62-month low of 4.7% in the third quarter.

  Consumer price inflation remained benign and in fact eased back slightly in
  September, on account of lower oil prices, fall-back of certain fresh food
  prices and more steady increase in private housing rentals. Rising
  productivity also helped to keep the inflation rate at a moderate level.

  The net outputs of financial services, communications, restaurants and
  hotels, import and export trade, and transport and storage continued to
  show good performance in the second quarter, reflecting the development of
  Hong Kong into international centres for financial services, trade and
  logistics, and tourism.
                                      1
Overall situation

1.1      The Hong Kong economy picked up again in the third quarter of 2006,
as merchandise exports regained vigor, service exports sustained fairly robust
growth, and domestic demand continued to display strength. Meanwhile,
consumer price inflation remained benign, helped by the recent easing in oil
prices, more steady increase in private housing rentals and sustained increase in
productivity.

1.2       With trade showing a renewed acceleration and with domestic sector
holding up very well, the Gross Domestic Product (GDP)(1) picked up to growth
at 6.8% in real terms in the third quarter over a year earlier, from that of 5.5% in
the second quarter (revised up from the earlier estimate of 5.2%). This also
signified the twelfth consecutive quarter of above-trend growth. For the first
three quarters of 2006 as a whole, the pace of economic expansion was brisk, at
6.8% over the same period in 2005.                   On a seasonally adjusted
                                (2)
quarter-to-quarter comparison , GDP also grew faster, by 3.5% in real terms in
the third quarter, up from that of 0.3% in the second quarter (revised from the
previous estimate of virtually no growth).

    Diagram 1.1 : Economy gathering strength again in the third quarter

            Percent
     14

     12
                                                         Year-on-year rate of
     10
                                                         change in real terms
      8

      6
                                                 Seasonally adjusted
      4                                        quarter-to-quarter rate of
                                                 change in real terms
      2

      0

      -2

      -4

      -6
           Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
               2001        2002        2003        2004        2005      2006




                                           2
                         Table 1.1 : Gross Domestic Product and its main expenditure components
                                               and the main price indicators
                                             (year-on-year rate of change (%))

                                          2004      2005                          2005                               2006
                                                                Q1       Q2         Q3          Q4      Q1        Q2#       Q3+
 Change in real terms of GDP and
its main expenditure components (%)
Private consumption                        7.3       3.4         4.1        2.4       3.6         3.4      4.5       5.1      4.4
    expenditure                                                (0.4)      (0.5)     (1.3)       (0.9)    (1.6)     (1.2)     (0.5)
Government consumption                     0.7      -3.1         -4.6      -2.3      -1.6        -3.8      1.2      -1.5     -1.0
   expenditure                                                 (-2.6)    (-0.7)     (0.3)      (-1.0)    (2.6)    (-3.1)     (0.7)
Gross domestic fixed                       3.0       4.1         0.4       4.9           2.8     8.4      7.6       5.0      12.7
   capital formation                                       (N.A.)        (N.A.)    (N.A.)      (N.A.)   (N.A.)    (N.A.)    (N.A.)
   of which :
   Building and construction              -11.7     -6.1        -1.0      -7.5       -5.2      -10.7    -11.1      -3.7      -5.7
   Machinery, equipment and               11.0      10.6         0.8      10.7           7.1    24.0     23.3      12.8      22.4
     computer software
Total exports of goods                    15.3      11.2         8.9      11.1      12.8        11.4     14.4        6.4      8.9
                                                               (0.1)      (6.0)     (3.1)       (2.2)    (2.2)    (-1.1)     (6.4)
Imports of goods                          14.1       8.6         3.8        7.0     11.0        12.0     14.0        6.7      8.5
                                                               (1.9)      (5.1)     (2.2)       (2.6)    (3.3)    (-1.6)     (4.7)
Exports of services                       17.9       8.7         8.7        9.1       8.9         8.2      8.9       9.0      8.6
                                                               (0.4)      (2.4)     (4.3)       (1.1)    (0.8)     (2.2)     (4.3)
Imports of services                       14.6       2.9          6.0      -0.1       3.5         2.3      4.9       8.3      5.5
                                                               (-2.1)     (3.7)     (0.7)      (-0.3)    (1.0)     (6.8)    (-2.1)
Gross Domestic Product                     8.6       7.3         6.0        7.2       8.2         7.5      8.0      5.5       6.8
                                                               (1.6)      (2.8)     (2.2)       (0.6)    (2.2)     (0.3)     (3.5)

Change in the main
price indicators (%)
GDP deflator                               -3.6     -0.2        -1.4       -0.6          0.2      0.7     -0.1      -0.1     -0.2
                                                               (0.1)      (0.2)          (*)    (0.5)   (-0.9)     (0.2)     (0.1)
Composite Consumer Price                  -0.4     1.0@        0.4@       0.8@    1.4@    1.3@             1.6@      2.0@     2.3@
  Index                                                        (0.1) @    (0.3) @
                                                                                  (0.3) (0.5)@
                                                                                       @
                                                                                                         (0.4)@    (0.8)@    (0.6)@

Change in nominal GDP (%)                  4.7       7.0         4.6       6.6           8.4     8.2      7.9       5.4       6.6



Notes : Figures are subject to revision later on as more data become available.
         (#)       Revised figures.
         (+)       Preliminary figures.
         (     )   Seasonally adjusted quarter-to-quarter rate of change.
         N.A.      Not applicable, as no clear seasonal pattern is found in gross domestic fixed capital formation,
                   due to the presence of considerable short-term fluctuations.
         (@)       By reference to the new 2004/05-based CPI series.
         (*)       Change of less than 0.05%.




                                                           3
1.3        Merchandise exports showed a faster growth in the third quarter,
thanks to the Mainland’s continued robust trade flows and surging
intra-regional trade. The growth of exports to the US, the EU and Japan
however remained rather weak, the former being affected by slowing economy
there, the latter two possibly due to the lagged effects of the weakening of the
euro and yen in late 2005 and early 2006. Yet with exports to Asia showing a
visible pick-up, total exports of goods as a whole accelerated to an 8.9% growth
in real terms in the third quarter over a year earlier, distinctly up from the 6.4%
growth in the second quarter. Exports of services sustained fairly robust
growth in the third quarter, at 8.6%, with much of the growth coming from the
continued brisk expansion of offshore trade. The buoyant financial market and
growing business activities also generated increased demand for exports of
financial and other business services.

1.4       Domestic demand continued to play an important role in the current
full-fledged economic upturn. Local consumer spending rose solidly further in
the third quarter, amidst improving employment income, expanding job
opportunities and a buoyant stock market. A more stable property market,
together with the pause in interest rate hikes, also helped.             Private
consumption expenditure (PCE) attained a solid growth of 4.4% in real terms in
the third quarter over a year earlier, further to growth of 4.5% and 5.1% in the
first two quarters. Government consumption expenditure continued to fall in
the third quarter. The Government remained vigilant in maintaining a robust
and sustainable fiscal position.




                                        4
                      Table 1.2 : Consumer spending by major component(a)
                         (year-on-year rate of change in real terms (%))

                                   Of which :
                         Total
                       consumer
                      spending in                                Residents’           Private
                     the domestic               Non-            expenditure Visitor consumption
                       market(a) Food Durables durables Services abroad spending expenditure(b)
2005 Annual              4.3             3.8          6.7        6.3            3.2          -0.6           9.5        3.4
         Q1              4.4             2.8          9.5        9.1            2.2           7.7         11.6         4.1
         Q2              3.9             4.0          8.2        6.3            2.3          -9.1          8.2         2.4
         Q3              4.6             3.2          7.2        5.0            4.2          -1.5          8.7         3.6
         Q4              4.1             4.8          2.6        5.1            4.0           0.9          9.6         3.4

2006 Q1                  5.2             5.5          4.1        3.4            5.9           1.0           8.2        4.5
     Q2                  5.0             4.8          4.4        3.3            5.7           7.3           5.4        5.1
     Q3                  4.4             2.7          6.1        3.7            4.6           1.3           0.7        4.4
 Notes : (a)        Consumer spending in the domestic market comprises both local consumer and visitor
                    spending, which are not separable from the survey data.
           (b)      Private consumption expenditure is obtained by deducting visitor spending from the
                    total consumer spending in the domestic market, and adding back residents’
                    expenditure abroad.
              Figures are subject to revision later on as more data become available.


         Diagram 1.2 : Consumer spending                              Diagram 1.3 : Investment spending
               grew solidly further,                                    on machinery and equipment
             amidst upbeat sentiment                                   surged further, but construction
                                                                          activity remained sluggish
          Percent                                                      Year-on-year rate of change in real terms (%)
   16                                                           40
   14                          Year-on-year rate of             35
                               change in real terms                                      Expenditure on machinery,
   12                                                           30                        equipment and computer
                                                                                                 software
   10                                                           25
     8                                                          20           Overall
                                                                           investment
     6                                                          15         expenditure
     4                                                          10
     2                                                           5
     0                                                           0
                                   Seasonally adjusted
    -2                              quarter-to-quarter           -5
    -4                               rate of change             -10
                                      in real terms
    -6                                                          -15
                                                                                            Expenditure on building
    -8                                                          -20                            and construction
   -10                                                          -25
         Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                          Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
          2001 2002 2003 2004 2005 2006                                2001 2002 2003 2004 2005 2006




                                                            5
1.5       Overall investment spending in terms of gross domestic fixed capital
formation accelerated sharply in the third quarter of 2006, up by 12.7% in real
terms over a year earlier, the fastest growth since the fourth quarter of 2000.
Machinery and equipment investment, which surged by 22.4%, was still the key
driver of overall investment growth, reflecting the strong business confidence.
According to the latest Business Tendency Survey, the big companies surveyed
were generally positive about the near-term business outlook. Indeed, being
the trade and business hub in the region and against the backdrop of a rapidly
growing Mainland economy, the attractiveness of Hong Kong as a place for
doing business has been increasing over the years. Activity in the construction
sector remained weak in overall terms, as public sector output continued to fall
sharply. On the other hand, the decline in output in the private sector segment
had been arrested in the recent two quarters. With few large-scale construction
projects going on in the public sector, it might take some time for overall
construction activity to turn around.

1.6       Consumer price inflation remained moderate, notwithstanding the
brisk pace of economic expansion for twelve quarters by now. The Composite
CPI rose by 2.3% in the third quarter over a year earlier, slightly up from the
2.0% increase in the second quarter. Yet consumer price inflation actually
edged slightly lower from 2.5% in August to 2.1% in September, on account of
the recent easing in oil prices, fall-back in prices of some fresh food items and
the more steady increase in private housing rentals. As to the GDP deflator, it
remained soft in the third quarter over a year earlier, due to continued decline in
the terms of trade. Excluding the relative price movements of exports and
imports, the domestic demand deflator rose by 2.1% in the third quarter,
broadly similar to the rate of consumer price inflation.




                                        6
                          Diagram 1.4 : Inflation remained benign

           Year-on-year rate of change (%)
      4


      2


      0
                                  Composite Consumer
                                     Price Index
     -2


     -4                                                GDP deflator

                    Domestic
     -6             demand
                     deflator

     -8
          Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
              2001        2002        2003        2004        2005      2006




Net output or value added by major economic sector

1.7          It is important to enhance further the role of Hong Kong as an
international financial centre as well as a trading and logistics hub in the region.
The activities so generated will be the major driving forces underlying Hong
Kong’s overall economic growth. Latest available figures indicate that net
output in the services sector as a whole rose by 7.3% in real terms in the second
quarter of 2006 over a year earlier. Among the various service sectors,
financial services showed the most impressive performance, followed by
communications. Meanwhile, the pick-up in local consumption spending and
the sustained expansion of inbound tourism has lifted the business in the
restaurants and hotels, and to a less extent, also the wholesale and retail trades.
Import and export trade, and transport and storage also grew further, albeit less
rapidly in the second quarter than in the first, reflecting mainly the moderation
in external trade over the period. As for manufacturing, its net output rose
further, amidst the strong domestic export performance in the second quarter.
Net output in the construction sector continued to fall, though with some
relative improvement over the preceding quarter.




                                                  7
                           Table 1.3 : GDP by economic activity(a)
                       (year-on-year rate of change in real terms (%))
                                                                  2005                     2006
                               2004       2005        Q1     Q2          Q3      Q4       Q1       Q2
Manufacturing                    1.7        2.1       -2.3   -0.1        4.1      5.9     7.0      5.3
Construction                    -9.8       -6.6        0.5   -8.4        -5.5   -12.4   -12.3     -4.1
        (b)
Services                         9.9        7.9        7.1    8.4        8.5     7.7     9.1       7.3
   Of which:
   Wholesale, retail and       15.1       11.1        10.5   12.1    11.0       10.9    12.4       6.8
     import and export
     trades, restaurants
     and hotels
     Import and export         15.4       12.1        11.5   13.3    11.9       11.8    13.8       7.0
     trade
     Wholesale and               7.8        5.2        6.5    6.2        4.3     4.2     3.8       3.6
     retail trades
     Restaurants and           22.6         8.3        6.6    7.4        8.9    10.3     9.4       9.3
     hotels
   Transport, storage and      13.9       13.5        12.7   12.3    15.3       13.5    11.2       6.8
      communications
       Transport and           14.0       14.5        13.8   13.0    16.6       14.2    10.7       5.7
       storage
       Communications          13.8       10.8         9.7   10.5    11.4       11.6    12.7      10.0
   Financing, insurance,       13.1         8.9        6.9   11.3    10.0        7.6    13.1      14.6
       real estate and
       business services
       Financial services       21.7      11.0         8.5   14.2    12.2        9.3    20.4      22.2
       Real estate and           1.1       5.4         4.4    6.4     6.3        4.6     0.8       0.4
       business services
   Community, social and         2.6        0.9        1.0    0.1        1.1     1.5     1.3       1.2
      personal services
 Notes : (a)    The GDP figures shown in this table are compiled from the production approach, in
                parallel with those shown in Table 1.1 which are compiled from the expenditure
                approach. For details, see Note (1) to this chapter.
           (b) In the context of value-added contribution to GDP, the service sectors include
                ownership of premises as well, which is analytically a service activity.
           Figures are subject to revision later on as more data become available.




                                                  8
Some highlights of economic policy

1.8           In his Policy Address on 11 October, the Chief Executive indicated
if Hong Kong is to embrace the era of globalisation, it is pivotal to integrate
with the Mainland economy and to play an appropriately important role in its
development. To attain such a mission, the following strategic directions are
identified to enable the economy to scale new heights:

    To consolidate and enhance the position of Hong Kong as an international
    financial centre. Specifically, the listing rules will be amended to enable
    well-established foreign enterprises to list in Hong Kong; the Government
    is fully prepared to launch new renminbi business in Hong Kong; and the
    Government will study the development of commodity futures market and
    seek to attract some of the offshore securities investment business of
    Mainland insurance agencies.

    To further the development of trade and logistics. The Government will
    enter into more economic and trade arrangements with trading partners to
    gain more favourable access for Hong Kong goods and services.
    Measures will also be taken to facilitate river trade, to expand air services
    network as well as the airport’s air cargo and passenger capacity, and to
    work with the Mainland authorities to enhance cross-boundary cargo flows.

    To promote innovation and information technology. Specific measures
    include promoting e-Government, introducing legislation in 2006-07 to
    establish a new Communications Authority, consulting public on radio
    spectrum management to ensure better utilisation, and earmarking
    $100 million over five years for Hong Kong Design Centre to help trades
    and industries to improve designs and to build brand names.

    To develop cultural and creative industries. The Government will better
    co-ordinate the support for the film industry, establish a Hong Kong Film
    Development Council and seriously consider the proposals put forward by
    the Film Development Committee. Other specific measures will also be
    introduced to promote arts and culture.

    To protect labour rights and to attract talent. The Government will ensure
    all strata of the community be benefited from economic growth, by
    launching a Wage Protection Movement for employees in the cleansing and
    guarding services sectors and promoting the use of written employment
    contracts. To sustain economic development, the Government will
                                       9
      continue to attract talent from around the world, by adopting a more
      open-minded and proactive policy approach to expand the pool of human
      capital.

1.9       The Economic Summit on "China's 11th Five-Year Plan and the
Development of Hong Kong" was held on 11 September. Representatives
from the industrial and business, professional, labour and academic sectors
attended the Economic Summit to discuss how Hong Kong should respond to
the challenges and opportunities arising from the 11th Five-Year Plan, with a
view to coming up with a pragmatic and feasible “action agenda” for the
Government, academics, the business sector and the public around the end of
the year. Several broad strategic directions were identified for further
discussions at the next stage. First, the flow of people, freight, capital and
information between Hong Kong and Guangdong and the Mainland should be
enhanced. Second, the communication with the Central Authorities should be
further stepped up. Third, Hong Kong should continue to work harder in the
nurturing of talent as well as attracting talent from overseas and the Mainland to
come to work here. Fourth, Hong Kong should build on the “Brand Hong
Kong” and give full play to it in the 11th Five-Year Plan. Also, strategic
directions were identified to further strengthen the position of Hong Kong as an
international financial centre.




Notes :

(1)   The Gross Domestic Product (GDP) is an overall measure of net output produced
      within an economy in a specified period, such as a calendar year or a quarter, before
      deducting the consumption of fixed capital. In accordance with the expenditure
      approach to its estimation, GDP is compiled as total final expenditures on goods and
      services (including private consumption expenditure, government consumption
      expenditure, gross domestic fixed capital formation, changes in inventories, and
      exports of goods and services), less imports of goods and services.


(2)   The seasonally adjusted quarter-to-quarter GDP series, by removing the variations that
      occur at about the same time and in about the same magnitude each year, provides
      another perspective for discerning the trend, particularly in regard to turning points.
      A detailed examination reveals the presence of seasonality in the overall GDP and in
      some of its main components, including private consumption expenditure, government
      consumption expenditure, exports of goods, imports of goods, exports of services, and
      imports of services. However, due to the presence of considerable short-term
      fluctuations, no clear seasonal pattern is found in gross domestic fixed capital
      formation. Therefore, the seasonally adjusted series of GDP is compiled separately at
      the overall level, rather than summing up from its main components.

                                             10
               CHAPTER 2 : THE EXTERNAL SECTOR


Summary

  Merchandise exports resumed faster growth in the third quarter of 2006 after
  some moderation in the second quarter. The Mainland’s continued vibrant
  trade flows, the generally active intra-regional trade, as well as the renewed
  weakening of the US dollar in recent quarters were the major contributing
  factors.

  The pick-up in exports was mainly seen in the Asian markets, with China
  again as the bright spot and with exports to quite a number of Asian
  economies also resuming double-digit growth along with the resurgence in
  intra-regional trade. Exports to the European Union showed only modest
  increase, while exports to the US remained weak.

  Exports of services continued to grow briskly in the third quarter of 2006.
  Exports of trade-related services were bolstered by buoyant trade flows of the
  Mainland, while exports of transportation services picked up in tandem with
  the faster trade growth. Exports of financial and insurance services also
  attained double-digit growth amidst the more active financial market
  activities. Yet the momentum in exports of travel services slowed upon a
  more moderate growth in incoming visitors.

  The Chief Executive’s 2006-07 Policy Address put forth various policy
  initiatives to sharpen the competitiveness of the trading and logistics sector.
  The Policy Address also committed to work closely with the Mainland
  authorities to ensure the smooth and effective implementation of CEPA.
  Meanwhile, following the Economic Summit held in early September, action
  agenda on a number of strategic issues on the trade front would be worked
  out by the end of this year.




                                      11
Visible trade

           Total exports of goods

2.1      Merchandise exports resumed faster growth in the third quarter of 2006,
after expanding less vigorously in the second quarter. Total exports of goods
(comprising re-exports and domestic exports) picked up to an 8.9% growth in
real terms(1) in the third quarter of 2006 over a year earlier, after a moderated
6.3% growth in the second quarter. The improved performance in the third
quarter occurred even in the midst of a more moderate US economic growth,
being underpinned by the Mainland’s continued vibrant trade flows, the
resurgence of intra-regional trade, and the renewed weakening of the US dollar in
recent quarters.

2.2       Within total exports, re-exports(2) re-accelerated to a 9.8% growth in
real terms in the third quarter of 2006, distinctly up from that of 5.3% in the
second quarter. Re-exports to almost all major markets showed improvement in
the third quarter, underscoring the resilience and competitiveness of our trading
sector.


      Table 2.1 : Total exports of goods, re-exports and domestic exports
                       (year-on-year rate of change (%))
                  Total exports of goods                   Re-exports                      Domestic exports

              In value     In real       Change In value     In real       Change In value      In real       Change
               terms        terms       in prices terms       terms       in prices terms        terms       in prices

2005 Annual    11.4      11.4             1.3     11.7     11.6             1.2      8.0      7.6               2.2

     Q1        10.6      9.2    (0.2)     2.1     11.7     10.4   (0.9)     2.0    -6.9      -9.5 (-11.3)       4.8
     Q2        12.5      11.7   (6.0)     1.8     13.8     13.0   (6.1)     1.6    -6.4      -8.3   (4.0)       4.7
     Q3        12.5      12.8   (3.0)     1.0     12.4     12.7   (2.0)     1.0    14.0      14.3 (21.7)        1.1
     Q4        10.0      11.4   (2.2)     0.4      9.0     10.3   (1.3)     0.5    25.2      28.1 (15.3)       -0.5

2006 Q1        12.1      14.6 (2.5)      -0.3     10.7     13.2 (2.9)      -0.2    38.7      42.3   (-2.7)     -2.9
     Q2         5.4       6.3 (-1.4)      0.6      4.6      5.3 (-1.0)      0.9    19.9      23.9   (-6.9)     -3.9
     Q3         8.4       8.9 (6.4)       1.4      9.4      9.8 (7.4)       1.5    -6.1      -4.2   (-8.9)     -1.3


Note : Figures in brackets are the seasonally adjusted quarter-to-quarter rates of change.




                                                   12
       Diagram 2.1 : Merchandise exports regained vigor in the third quarter
                                 (year-on-year rate of change)

        Percent                                                                    Percent
  35                                                                                         -14
                                                                                             14

  30                                                                                             -12
                                                                                                 12
                                                                   Total import demand
  25                                                                 in Hong Kong's              -10
                                                                                                 10
                                                                      major markets
  20                                                                                             -8
                                                                                                 8
                                                                        (left scale)
                                                                                             #
  15                                                                                             -6
                                                                                                 6

  10                                                                                             -4
                                                                                                 4
                                        Hong Kong's total
   5                                    exports of goods                                         -2
                                                                                                 2
                                           (left scale)
   0                                                                                             00

  -5                                                                    Trade-weighted           -2
                                                                                                  2
                                                                          Real EERI*
 -10                                                                     (right scale)            4
                                                                                                 -4

 -15                                                                                              6
                                                                                                 -6
       Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
           2001        2002        2003        2004        2005      2006

         Notes : Total exports of goods as depicted refer to the year-on-year rate of change
                 in real terms, while total import demand in Hong Kong’s major markets as
                 depicted refers to the year-on-year rate of change in US dollar terms in the
                 aggregate import demand in East Asia, the United States and the European
                 Union taken together.
                  (*)   For ease of comparison with the rate of change in Hong Kong’s
                        total exports of goods, the scale for the Real EERI is presented
                        here upside down, so that positive changes denoting real
                        appreciation of the Hong Kong dollar appear at the lower part and
                        negative changes denoting real depreciation at the upper part of the
                        diagram.
                  (#)   Figure for Jul-Aug only.

2.3       But domestic exports reverted to a decline of 4.2% in real terms in the
third quarter of 2006, having surged continuously for four consecutive quarters
thereby resulting in a distinctly high base of comparison for the current quarter.
Domestic exports of textile and clothing items fell back in the third quarter, as the
base effect from the enlargement of local clothing production following the
imposition of anti-surge safeguards by the US and the EU last year on their
textile and clothing imports from the Mainland set in. This more than offset the
increase in domestic exports of non-clothing products.




                                                 13
                       Diagram 2.2 : Re-exports picked up distinctly,
                         while domestic exports reverted to decline
            (a) Year-on-year rate of change          (b) Seasonally adjusted quarter-to-quarter
                     in real terms                           rate of change in real terms
        Percent                                           Percent
  50                                                50
  45                                                45
  40                                                40
  35                                                35
              Total
  30         exports                                30
  25        of goods                                25
                          Re-exports                                         Total
  20                                                20
                                                                            exports
  15                                                15                     of goods
  10                                                10       Re-exports
   5                                                 5
   0                                                 0
  -5                        Domestic                -5                    Domestic
 -10                         exports             -10                       exports
 -15                                             -15
 -20                                             -20
       Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3               Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
        2001 2002 2003 2004 2005 2006                     2001 2002 2003 2004 2005 2006




Diagram 2.3 : The Mainland featured prominently in Hong Kong's exports


                                                                    Others
                                                                    $372.3 billion (21%)
  Mainland of China
  $836.9 billion (47%)

                                                                                     Singapore
                                                                                     $35.4 billion (2%)
                                                                                       Republic of Korea
                                                                                       $39.0 billion (2%)
                                                                                       Taiwan
                                                                                       $37.9 billion (2%)
                                                                                       United Kingdom
                                                                                       $52.8 billion (3%)
                                                                                     Germany
                                                                                     $54.7 billion (3%)
                                                                                 Japan
                                                                                 $89.4 billion (5%)



                                              United States
                                              $269.2 billion (15%)

        Total exports of goods in the first three quarters of 2006 : $1,787.5 billion




                                               14
                   Table 2.2 : Total exports of goods by major market
                    (year-on-year rate of change in real terms (%))

                     Mainland United European                             Republic
                     of China States  Union                 Japan         of Korea Taiwan          Singapore

2005       Annual       14.2          5.5    16.6                9.6        10.8           4.1        9.0

           Q1            9.9          5.1    21.4            11.5            5.4          -5.4       15.7
           Q2           13.3          7.6    19.3            10.8            5.4           4.8       14.5
           Q3           14.9          8.4    14.9            11.1           12.7           8.4        0.8
           Q4           17.9          0.9    12.5             5.6           19.0           8.2        6.6

2006       Q1           23.1           3.5       9.5             8.2        20.9          10.4        2.3
           Q2           11.4          -2.4       4.1             3.0        12.0          -5.3       -5.4
           Q3           15.8          -1.1       1.9             0.6        10.7           8.3       12.8

2.4      The export performance varied quite substantially across different
regions. Total exports to Asia picked up quite visibly in the third quarter,
marked by a further acceleration in exports to the Mainland, thanks to the
Mainland’s vibrant trade flows. Exports to many other Asian economies such
as Taiwan and Singapore showed a notable rebound, underpinned by their fairly
strong import demand amidst sustained economic growth. Meanwhile, exports
to Korea attained another quarter of double-digit growth, thanks to its persistently
strong import demand and a strong won. On the other hand, exports to Japan
slowed down further, being curbed by the weakness of the yen and also the
moderating import demand there.
     Diagram 2.4 : Hong Kong's total                                   Diagram 2.5 : Hong Kong's total
  exports of goods to Mainland of China                                 exports of goods to Singapore
      Year-on-year rate of change (%)                            Year-on-year rate of change (%)
 60                                                    30 60
                               Hong Kong's
                              total exports to
 50                          Mainland of China         25 50
                                (right scale)
 40                                                    20 40
                                                                        Hong Kong's
 30                                                    15 30           total exports to
                                                                          Singapore                  Singapore's
                                                                                                   import demand
 20                                                    10 20
                Mainland of China's
                 import demand
 10                                                    5    10
                    (left scale)

  0                                                    0    0
             HKD per unit of RMB (right scale)                                 HKD per unit of
                                                                               Singapore Dollar
-10                                                    -5 -10

-20                                                    -10 -20
      Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                              Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
       2002  2003  2004  2005  2006                               2002  2003  2004  2005  2006


                                                       15
      Diagram 2.6 : Hong Kong's total                             Diagram 2.7 : Hong Kong's total
    exports of goods to Republic of Korea                            exports of goods to Japan
        Year-on-year rate of change (%)                          Year-on-year rate of change (%)
  50                                                       50

          Hong Kong's total
  40         exports to                                    40
          Republic of Korea
                                Republic of Korea's
  30                              import demand            30
                                                                      Hong Kong's total
                                                                       exports to Japan          Japan's
  20                                                       20                                 import demand


  10                                                       10


   0                                                        0
                    HKD per unit of
                     Korean Won                                                       HKD per unit
                                                                                        of Yen
  -10                                                      -10


  -20                                                      -20
        Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                            Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
         2002  2003  2004  2005  2006                             2002  2003  2004  2005  2006




2.5       Export performance to markets outside Asia was less impressive.
Along with the tapering in the growth of EU’s import demand, exports to the EU
showed only modest increase. The weakening of the euro in late 2005 and early
2006 might also still have some lagged dampening impact. Moreover, the high
base effect resulting from the surge in T&C exports to these markets last year had
yet to fully dissipate. Exports to the US market remained weak, partly
reflecting the slowing US economy upon higher interest rates and a slowing
housing market, and partly also because of the on-going structural shift to
offshore trade.




                                                      16
         Diagram 2.8 : Hong Kong's total                      Diagram 2.9 : Hong Kong's total
              exports of goods to EU                               exports of goods to US
       Year-on-year rate of change (%)                       Year-on-year rate of change (%)
 30                                                     30                                      6
                           Hong Kong's total
                             exports to EU
 25                                                     25                     US GDP
                                                                             in real terms      5
 20                                                     20                   (right scale)

 15                                                     15                                      4
                                               *
 10                                                     10
                                                                                                3
  5                                                      5

  0                                                      0                                      2

 -5                                                     -5
              EU's import
               demand                                                                           1
-10                            HKD per unit         -10               Hong Kong's total
                                 of Euro                               exports to US
-15                                                                      (left scale)
                                                    -15                                         0
      Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                          Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
       2002  2003  2004  2005  2006                           2002  2003  2004  2005  2006
      Note : (*) Figure for Jul-Aug only.




              Imports of goods

2.6       Imports of goods picked up to an 8.7% growth in real terms in the third
quarter of 2006, after a 6.7% growth in the second quarter. Import intake for
subsequent re-exporting re-accelerated in tandem with the faster re-export growth.
Underpinned by the robust domestic demand, retained imports continued to grow
solidly, by 5.4% in real terms in the third quarter of 2006, albeit moderated from
the 10.5% growth in the second quarter. Retained imports of capital goods
continued to surge, alongside the sustained expansion of commercial activities
and upbeat business sentiment. Retained imports of consumer goods also
posted a notable increase in tandem with the vibrant local retail business, though
not as rapid as in the first two quarters. But retained imports of raw materials
and semi-manufactures continued on a downslide.




                                                   17
                     Table 2.3 : Imports of goods and retained imports
                             (year-on-year rate of change (%))
                                    Imports of goods                                 Retained imports(a)

                         In value         In real          Change         In value         In real          Change
                          terms            terms          in prices        terms            terms          in prices

2005     Annual            10.3        8.5                  2.7                7.3       0.8                    8.4

         Q1                 8.1        4.4      (1.6)       4.0               -0.7      -8.6   (3.4)        11.1
         Q2                10.1        7.6      (5.2)       3.3                1.1      -4.8   (2.6)         9.6
         Q3                11.5       10.4      (1.6)       2.3                9.6       4.1   (0.6)         7.2
         Q4                11.3       11.0      (2.6)       1.6               19.5      13.0   (6.4)         5.3

2006     Q1                13.8       13.9      (3.8)       1.0               22.7      15.8 (6.3)              4.4
         Q2                 8.1        6.7     (-1.5)       1.9               18.5      10.5 (-2.8)             4.7
         Q3                10.7        8.7      (4.3)       2.7               14.8       5.4 (-3.9)             5.8

Notes : Figures in brackets are the seasonally adjusted quarter-to-quarter rates of change.
          (a)      Based on the results of the Annual Survey of Re-export Trade conducted by the
                   Census and Statistics Department, re-export margins by individual end-use
                   category are estimated and adopted for deriving the value of imports retained
                   for use in Hong Kong.



                Diagram 2.10 : Total imports picked up in the third quarter,
                      as import intake for re-exporting re-accelerated
                      and intake for local use showed further growth
            (a) Year-on-year rate of change                     (b) Seasonally adjusted quarter-to-quarter
                     in real terms                                      rate of change in real terms
        Percent                                                     Percent
  25                                                         25
                    Imports
                    Re-exports
                    of goods
  20                                                         20

  15                                                         15

  10                                                         10                                      Imports
                                          Total exports                                              of goods
                                            of goods
    5                                                          5

    0                                                          0

   -5                                                          -5
                               Retained
  -10                          imports                       -10                                Retained
                  Domestic exports                                                              imports
  -15                                    -15
     Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3    Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
      2001  2002  2003  2004  2005  2006     2001 2002 2003 2004 2005 2006




                                                          18
                Table 2.4 : Retained imports by end-use category
                 (year-on-year rate of change in real terms (%))
                                                               Raw
                    Consumer                   Capital     materials and
                     goods       Foodstuffs    goods     semi-manufactures    Fuels

2005   Annual         -4.9          1.8         15.8           -7.5           -6.0

       Q1             -6.7         -1.5          1.5          -19.5           -1.1
       Q2            -22.6          0.7         16.3           -8.8          -10.9
       Q3             -1.2          3.3         10.9            0.9           -1.4
       Q4             13.7          4.5         34.9           -1.4          -10.4

2006   Q1             16.9          4.3         38.4           -6.4            4.0
       Q2             37.3          4.8         19.8          -13.4           -4.9
       Q3              7.8          2.3         32.5          -27.5            3.5



Invisible trade

         Exports of services

2.7       Exports of services maintained strong growth momentum, rising by
8.6% in real terms in the third quarter of 2006, after growth of 9.0% in the second
quarter. Exports of trade-related services continued to surge under the support
of thriving trade flows of the Mainland and the on-going shift from re-exports to
offshore trade. Exports of transportation services were strong, as merchandise
trade flows re-accelerated while transhipment maintained solid growth.
Concurrently, exports of finance, business and other services attained
double-digit growth, partly contributed by surging IPO and other fund raising
activities in the financial markets during the quarter. Yet exports of travel
services slowed upon a more moderate growth in incoming visitors.




                                          19
     Diagram 2.11 : Trade-related and                          Diagram 2.12 : Exports of services
   transportation services accounting for                         continued to grow briskly,
       three-fifths of service exports,                       along with the pick-up in re-exports
      reflecting the important role of                        and continued robust offshore trade
        Hong Kong as a trading hub
                                                              Percent
                                                         40
   Finance, business
   and other services          Travel services           35
                               $64.5 billion                                           Year-on-year
   $80.7 billion                                         30                           rate of change
   (20.3%)                     (16.2%)
                                                         25                            in real terms
                                                         20
                                                         15
                                                         10
                                                         5
                                                         0
                                                                                Seasonally adjusted
                                                         -5                    quarter-to-quarter rate
                                                        -10                    of change in real terms
 Trade-related                 Transportation
 services                      services                 -15
 $128.9 billion                $124.1 billion           -20
 (32.4%)                       (31.2%)
                                                        -25
 Exports of services in the first three quarters           Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
           of 2006 : $398.1 billion                         2001  2002  2003  2004  2005  2006




                  Table 2.5 : Exports of services by major service group
                     (year-on-year rate of change in real terms (%))
                                          Of which :
                                                                                                   Finance,
                                                                                                   business
                         Exports          Trade-related Transportation Travel                      and other
                        of services        services(a)     services    services(b)                  services
2005      Annual         8.7                     12.3                   6.6           9.5                 5.0
          Q1             8.7      (0.4)          11.3                   5.3         11.6                  7.2
          Q2             9.1      (2.4)          14.9                   7.0          8.2                  4.0
          Q3             8.9      (4.3)          12.2                   6.6          8.7                  6.0
          Q4             8.2      (1.1)          11.4                   7.2          9.6                  2.7
2006      Q1             8.9      (0.8)          13.3                   7.2           8.2                 5.2
          Q2             9.0      (2.2)          10.8                   7.1           5.4                11.3
          Q3             8.6      (4.3)          11.3                   7.0           0.7                11.0

Notes : Figures in brackets are the seasonally adjusted quarter-to-quarter rates of change.
          (a)     Comprising mainly offshore trade.
          (b)     Comprising mainly inbound tourism receipts.


                                                    20
Box 2.1
                     Offshore trade and the Mainland’s external trade

Over the past decades, the middleman role of Hong Kong as a conduit of trade between the
Mainland and the rest of the world has been evolving, from a simple entrepôt to a sophisticated
trading and logistics hub, supporting direct trade, re-exports, as well as the increasingly
important transhipment and offshore trade activities. Notwithstanding the structural shift to
different modes of operation, Hong Kong’s external sector performance continues to hinge
significantly on the Mainland’s external trade flows. This could be seen from the high
correlation between Hong Kong’s visible trade and exports of trade-related services on the one
hand and the Mainland’s total trade on the other.

Although the movement of external trade in Hong Kong and the Mainland are highly
synchronised, the growth momentum of Hong Kong’s visible trade was not as strong as the
Mainland’s in recent years. During 1991-95, the Mainland’s and Hong Kong’s visible trade
grew at broadly comparable average annual rates, at 19.5% and 17.4% respectively in US
dollar terms. Visible trade growth in Hong Kong however set back to a modest 2.5% annual
growth during 1996-2000 mainly due to reduced demand in the aftermath of the Asian
financial turmoil, yet the Mainland’s visible trade still maintained an average 11.0% growth per
annum. The Mainland’s accession to the WTO coupling with continued trade liberalisation
measures saw a strong pick-up in its visible trade, by 24.6% per annum during 2001-05. By
comparison, visible trade growth in Hong Kong averaged at only 7.3% per annum during the
same period.


            Growth in Hong Kong's visible trade was not as strong as that of
                       Mainland's visible trade in recent years
         Year-on-year rate of change (%)
   40
              Mainland's visible trade
              Hong Kong's visible trade
   30


   20


   10


    0


  -10


  -20
        1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
                                                                                       Q1-Q3




                                                  21
Box 2.1 (cont’d)
Yet the slower growth in Hong Kong’s visible trade than the Mainland’s over the recent decade
has to be viewed against the stronger performance of Hong Kong’s sustained robust growth in
offshore trade, underscoring the shift of Hong Kong towards a more sophisticated trading and
logistics centre. These offshore trade activities in the form of merchanting or merchandising
have become an increasingly important growth driver for the Hong Kong economy(#).

                                     Average annual growth in Hong Kong’s :
                                           (% per annum in real terms)

                                                                     Gross margin
                                    Visible trade                 from offshore trade
          1991 – 1995                   15.5                              5.3
          1996 – 2000                    4.7                             15.8
          2001 – 2005                    8.5                             14.2


Since early 1990s, exports of merchanting and trade-related services (in which offshore trade
constituted the bulk of 90% in 2004) have maintained notable double-digit growth, except in
1998 and 1999 in the aftermath of the Asian financial turmoil and amidst the fall back in global
demand in 2001 and 2002. During the 10-year period from 1996 to 2005, the gross margin
from offshore trade grew markedly by 12.8% per annum in value terms or 15.0% per annum in
real terms. In recent years, the value of goods involved in offshore trade has reached a level
comparable to or even larger than the value of re-exports.

                                              Value of goods involved in
                                          re-export trade and offshore trade

                                    Re-export of goods                Offshore trade
                                        (HK$Bn)                         (HK$Bn)

            2002                           1,430                           1,458
            2003                           1,621                           1,667
            2004                           1,893                           1,836

Further analysis indicates that merchanting activity takes up a dominant share (86%) of the
total gross margin and commission earned from offshore trade. Around 60% of merchanting
activity are sourced from the Mainland. A considerable and also rising proportion of these
merchanting activities are conceivably related to export processing undertaken in South China,
but they no longer need to route through Hong Kong as re-exports, now that China’s port
infrastructure has substantially improved. Specifically, in 2004, around 65% of the goods
sourced from the Mainland were sold under merchanting either involving manufacturing
through sub-contract processing arrangement or sourcing from affiliated companies in the
Mainland, up from 55% in 2000.

(#): Merchanting refers to services associated with the trading of goods which are purchased from and
     then sold to parties outside Hong Kong, without the goods ever entering and leaving Hong Kong.
     Merchandising for offshore transactions refers to services of arranging on behalf of buyers/sellers
     outside Hong Kong the purchases/sales of goods according to their specifications (including for
     example marketing, contract and price negotiation, shipment, etc). Also see Box 2.1 in 2005
     Half-yearly Economic Report.

                                                   22
Box 2.1 (cont’d)
In fact, Hong Kong companies reaped higher profit margin in offshore trade for goods sourced
from the Mainland, another manifestation of the significance of the Mainland as Hong Kong’s
production hinterland. In 2004, the trade margin of merchanting for goods sourced from the
Mainland stood at 10.8%, more than doubled that of 4.9% for goods sourced from other places.

When analysed by destination, sales of goods involved in merchanting to long-haul
destinations such as the US and the UK generally have higher trade margins than to Asia.

                               Trade margin of merchanting (%)

                                      2001            2002            2003             2004
Origin of goods :
  - from the Mainland                 11.4             10.8            11.0            10.8
  - from other places                 5.6              5.3             5.9              4.9

Destination to :
  - The US                            11.4             10.6            11.6            10.8
  - The UK                            9.2              10.4            10.7            8.7
  - The Mainland                      8.4               8.3             7.6             8.0
  - Japan                             9.3              8.0             7.6             5.1
  - Taiwan                            8.3               6.7            6.5             7.4

While the overall trade margin of merchanting, at 8.6% in 2004, was smaller than the 17.3%
margin for re-exports, offshore trade should have a greater potential for further rapid expansion.
Indeed, growing prosperity of the PRD and eventually the whole Pan-PRD is generating
substantial demand for services in Hong Kong, enhancing our position as a regional business
and trading hub and prompting Hong Kong’s economic restructuring towards high value-added
activities. As the trading and logistics sector moved up the value chain, and with increasing
use of supply-chain management, the share of trading and logistics in Hong Kong’s GDP has
actually been on the rise in recent years, from 23.8% in 2000 to 27.6% in 2004.




Imports of services

2.8      Imports of services maintained steady momentum, up by 5.5% in real
terms in the third quarter of 2006, after an 8.3% growth in the second quarter.
Imports of financial and insurance services, as well as transportation services
continued to register strong growth.         Imports of trade-related services
maintained rather steady growth, while imports of travel services rose modestly.




                                               23
 Diagram 2.13 : Travel services being the                         Diagram 2.14 : Imports of services
 largest component in imports of services                             maintained steady growth


       Trade-related         Finance, business                    Percent
       services              and other services              40
       $13.1 billion         $46.4 billion                   35
       (6.6%)                (23.2%)                                                       Year-on-year
                                                             30                           rate of change
                                                             25                            in real terms
                                                             20
                                                             15
                                                             10
                                                             5
                                                             0
                                                             -5                     Seasonally adjusted
  Travel services               Transportation                                     quarter-to-quarter rate
                                                         -10
  $81.3 billion                 services                                           of change in real terms
  (40.7%)                       $59.0 billion            -15
                                (29.5%)                  -20
                                                         -25
Imports of services in the first three quarters             Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
          of 2006 : $199.7 billion                           2001  2002  2003  2004  2005  2006



                Table 2.6 : Imports of services by major service group
                   (year-on-year rate of change in real terms (%))
                                                  Of which :                                           Finance,
                                                                                                       business
                        Imports            Travel     Transportation Trade-related                     and other
                       of services        services(+)    services      services                         services
2005     Annual        2.9                   -0.7                      5.8             7.5                    4.6
         Q1             6.0 (-2.1)            6.3                      7.5            6.5                     3.8
         Q2            -0.1 (3.7)            -7.6                      5.7           10.0                     4.8
         Q3             3.5 (0.7)            -0.8                      7.2            7.4                     5.9
         Q4             2.3 (-0.3)           -0.2                      3.2            6.6                     3.8
2006     Q1            4.9 (1.0)                  1.3                  6.5             3.8                   10.0
         Q2            8.3 (6.8)                  6.8                  8.9             1.5                   12.4
         Q3            5.5 (-2.1)                 1.4                  6.1             2.0                   13.8

Notes : Figures in brackets are the seasonally adjusted quarter-to-quarter rates of change.
          (+)   Comprising mainly outbound travel spending.




                                                        24
Visible and invisible trade balance

2.9       The combined visible and invisible trade balance stood at $55.5 billion
in the third quarter of 2006, equivalent to 7.3% of the total value of imports of
goods and services. The value was larger than the corresponding figure of
$53.7 billion (7.8%) in the same period in 2005. The sizeable surplus in the
visible and invisible trade account combined was a reflection of the overall strong
external competitiveness of the Hong Kong economy.


               Table 2.7 : Visible and invisible trade balance
                         ($ billion at current market prices)
                       Total exports           Imports                     Trade balance
                      Goods Services        Goods Services        Goods     Services Combined
2005     Annual     2,251.7      483.5     2,311.1      251.8      -59.3     231.6    172.3
         Q1           479.1      109.7       498.8       59.8      -19.7      49.9     30.2
         Q2           555.4      109.8       575.0       59.0      -19.6      50.8     31.2
         Q3           614.6      128.7       621.6       68.0       -6.9      60.7     53.7
         Q4           602.7      135.3       615.8       65.1      -13.1      70.2     57.1
2006     Q1           538.5      125.2       568.3       62.6      -29.8      62.6     32.8
         Q2           586.7      126.2       622.1       64.4      -35.4      61.8     26.4
         Q3           667.2      146.8       685.8       72.8      -18.6      74.1     55.5

Note :   Figures may not add up exactly to the total due to rounding.



Trade policy and other developments

2.10      In the era of globalisation and amidst the increasing integration with the
Mainland, there is continuous need for Hong Kong to beef up its external
competitiveness. In his 2006-07 Policy Address announced on 11 October 2006,
the Chief Executive put forth various policy initiatives to sharpen
competitiveness of the trading and logistics sector. For instance, at the micro
front, administrative measures will be streamlined to improve operating
efficiency of the river trade, while efforts will be made to expand the air cargo
handling capacity. At the macro front, Hong Kong would seek to enter into
more economic and trade arrangements with its trading partners to foster more
favourable market conditions for our exports of goods and services.

2.11      The Policy Address also committed to work closely with the Mainland
authorities at the central, provincial and municipal levels to ensure the smooth
and effective implementation of CEPA(3). As at end-September 2006, the Trade
and Industry Department (TID) and five Government Approved Certificate
                                              25
Organisations issued 16 821 certificates of Hong Kong origin (CEPA) to goods
produced in Hong Kong, involving a total of $5.77 billion worth of goods. TID
also approved 995 applications for certificates of Hong Kong Service Supplier.
As CEPA is an open and developing platform, the Government will continue to
engage the Mainland authorities on further liberalisation measures under CEPA
for the benefits of the Hong Kong economy.

2.12      The Economic Summit on “China's 11th Five-Year Plan and
Development of Hong Kong” held on 11 September also identified a number of
strategic issues on trade in goods and services for further study. They include
deepening and optimising CEPA and helping Hong Kong companies to tap the
Mainland market. Besides, policy directions on areas such as cross-boundary
infrastructure development, cross-boundary truck transport efficiency, upgrading
of airport facilities, and enhancing competitiveness of port and shipping industry
were also discussed. It is expected that a pragmatic and feasible action agenda
would be worked out by the end of this year.




Notes :

(1)   Estimates of price changes for the trade aggregates are based on changes in unit values,
      which do not take into account changes in the composition or quality of the goods
      traded, except for some selected commodities for which specific price indices are
      available. Changes in real terms are derived by discounting the effect of price changes
      from changes in the value of the trade aggregates.

(2)   Re-exports are those goods which have previously been imported into Hong Kong and
      are subsequently exported without having undergone in Hong Kong any manufacturing
      processes which change permanently the shape, nature, form or utility of the goods.

(3)   On 29 June 2006, further liberalization measures under CEPA were introduced.
      Starting from 1 July 2006, an additional 37 categories of Hong Kong products are
      entitled for zero tariff in entering the Mainland market, bringing the number of products
      with CEPA rules of origin to a total of 1 407. Moreover, 15 new liberalization
      measures in 10 existing services sectors will be implemented as from 1 January 2007,
      and protection of intellectual property is included into the trade and investment
      facilitation framework under CEPA.




                                             26
      CHAPTER 3 : DEVELOPMENTS IN SELECTED SECTORS

Summary

   The residential property market continued to develop healthily in the third
   quarter of 2006. Flat prices stabilised after a few months of mild decline,
   as sentiment improved upon the recent pause in US interest rate hikes. The
   non-residential segment largely fared well in tandem with continued
   business upturn.

   Inbound tourism maintained a decent performance in the third quarter,
   manifested by a broad-based rise in visitor arrivals from major markets.

   The recent decision by the Government to develop new cruise terminal
   facilities should enable Hong Kong to better capture the growth of the
   cruise industry worldwide and in the Asia Pacific Region. The tourism
   industry stands to benefit directly by the resultant increase in number and
   diversity of visitors.

   The logistics sector is moving ahead steadily with further expansion in both
   air and water freight. The robust Mainland economy being Hong Kong’s
   primary cargo source continues to be the major growth driver.

   The Policy Address announced by the Chief Executive in early October
   re-affirms the commitment of the Government to foster the development of
   innovative and high value-added industries. The initiatives introduced in
   the Address would reinforce the tendency of the business community to
   engage in innovative activities.

Property

3.1       The sales market for residential property continued to develop
healthily in the third quarter of 2006. Sentiment improved upon the recent
pause in US interest rate hikes and intensified mortgage competition amongst
the banks. Trading rose back in recent months, led by a visible rebound in
primary sales as developers stepped up launching new projects. Meanwhile,
flat prices stabilised after a brief and mild decline in the earlier months. Flat
prices in September 2006 were virtually unchanged from June, yet still giving a
modest increase of 2.1% over end-2005. Compared with the trough in 2003,
flat prices in September 2006 were 58% higher, but still 47% off the peak in
1997.
                                       27
                                  Diagram 3.1 : Flat prices stablised recently
                                   as trading returned to a moderate level
         Number of sale and purchase agreements ('000)                                               Index (1999=100)
    18                                                                                                                  110
               Residential property price index* (right scale)
    16         Primary market transactions (left scale)                                                                 100
               Secondary market transactions (left scale)                                                               90
    14
                                                                                                                        80
    12
                                                                                                                        70
    10                                                                                                                  60

     8                                                                                                                  50

                                                                                                                        40
     6
                                                                                                                        30
     4
                                                                                                                        20
     2                                                                                                                  10

     0                                                                                                                  0
         Jan     Apr   Jul      Oct     Jan    Apr   Jul         Oct   Jan   Apr   Jul   Oct   Jan     Apr     Jul
                   2003                          2004                          2005                    2006

         Note : (*) Residential property price index pertains to secondary market transactions
                    only.


3.2       Leasing of residential flats continued to perform steadily. Flat rentals
edged up further by 1.0% from June to September 2006, giving a cumulative
increase of 2.1% during the first nine months of the year. User demand stayed
solid, though activities appeared to shift somewhat to the sales front recently as
acquisition interest improved.

3.3      The markets for office and industrial spaces kept faring well in recent
months. Corporate expansion witnessed in many economic sectors bolstered
leasing activities. This, coupled with abundant market liquidity seeking high
capital yield, sustained acquisition interest. Prices and rentals moved up
concurrently against this backdrop. During the third quarter of 2006, office
prices and rentals rose further by 3.0% and 1.6% respectively, while the
corresponding increases for flatted factory prices and rentals were 5.2% and
4.5%.

3.4      As regards shopping space, prices and rentals continued to move
within a narrow band. Sentiment stayed cautious after the earlier market
upsurge. During the third quarter of 2006, prices of shopping space edged up
by 0.7%, while rentals held static. This notwithstanding, the recent fairly
strong performance of the retail sales may provide some support for the market
going forward.




                                                                  28
          Diagram 3.2 : The non-residential property markets largely fared well
                       in tandem with continued business upturn

                             (a) Prices                                            (b) Rentals
          Index (1999=100)                                         Index (1999=100)
   180                                                      150
             Office space                                              Office space
             Shopping space                                            Shopping space
   160       Flatted factory space                          135        Flatted factory space


   140                                                      120


   120                                                      105


   100                                                      90


    80                                                      75


    60                                                      60
         Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul              Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
              2004            2005           2006                      2004            2005           2006




Land

3.5       Sentiment among property developers in land acquisition showed
signs of improvement most recently. From early October to mid-November
2006, three prime residential sites on the Application List were successfully
triggered for sale through auctions to be held in late November and
mid-December. This followed 14 applications received from April to
September, of which most pertained to more peripheral locations and only two
were accepted and subsequently sold through auctions.

3.6       Sale of new railway sites kept drawing considerable market attention
due to location advantages. In the third quarter of 2006, the tender of a KCR
site in Tuen Mun was awarded after four tenders were received. Besides,
expression of Interest for another KCR site in Tsuen Wan was invited and 13
submissions were received.




                                                       29
Box 3.1

          Methodology of compiling property price and rental indices*
The official property price and rental indices are compiled by the Rating and Valuation
Department (R&VD) and published on a monthly basis. The indices now cover 4 major
types of property viz. residential property, office space, shopping space and flatted factory
space. A brief introduction to the methodology underlying compilation of these indices is
given below, with a view to facilitating the use of these indicators to analyse market changes.

Common mis-perceptions

There is a quite common approach to analyse property market performance by referring to the
movements in average price/rental per measurement of floor area (referred hereafter as
average price/rental for simplicity sake) for transacted properties. However, this approach is
very broad-brush in nature and sometimes may produce misleading indications. The main
reason is that properties transacted in different periods may differ substantially in qualities
and characteristics, such as floor level, view, location and age. These differences can give rise
to movements in average price/rental that hardly represent actual change in market condition.

In order to more accurately reflect market changes, comparison of property price/rental over
time should be made with the effect due to the factors of quality and characteristics being
discounted as far as possible. This can ideally be achieved by frequently updating the
potential saleable/leasing value of properties. However, massive resources in conducting
valuation would be involved, thereby imposing practical difficulties.

Rateable value approach to compile property price and rental indices

Nevertheless, the rateable value (RV) approach currently adopted by the R&VD provides a
technically viable and economical solution. This approach relies primarily on the RV that is
an estimate of annual open market rental value of a property assessed for rating purpose. It
is reviewed on the same date annually for all completed properties, with due regard to the
prevailing market condition generally and the quality and characteristics for different
properties specifically. The RV approach comprises 3 major steps :

(i)   The price/rental of a transacted property in a given category (by sales/leasing and by
      major property type) is divided by its RV to calculate a “factor” in that category. As
      the market prices/rentals as well as the RVs of different properties have already reflected
      the vast differences in quality, the “factors” can enable a like-with-like comparison of
      different property transactions in the same category.

(ii) The “factors” for all transacted properties in the same category and in a given period are
     pooled together and averaged in equal weighting to generate an average “factor” for the
     category in the period concerned.

(iii) The average “factors” for a given category in different periods are then used to construct
      an index that reflects price/rental change over time.

For residential property and office space of which more than one sub-category is featured,
step (ii) involves a weighting process in compiling the composite price or rental indices for
the category. The weights are based on the number of transactions for different grades of
residential property, and the floor area for different grades of office space, in the latest
12 months on a rolling basis to remove the seasonal effects.
                                               30
Box 3.1 (cont’d)

For illustrative purpose, the following diagram compares the recent month-to-month changes
of the property price/rental indices compiled by R&VD vis-à-vis the average price/rental
levels. Generally, the price/rental indices exhibits a more stable movement that matches
with the steady state of the private housing market so far in 2006. On the other hand, the
average price/rental exhibits greater fluctuations that do not quite tally with the actual
situation.

                         Residential property prices                                                   Residential property rentals
                      (month-to-month rate of change)                                                  (month-to-month rate of change)
     %                                                                            %
 6                                                                            3
         Price index                                                                  Rental index
 5       Average price                                                                Average rental
                                                                              2
 4

 3                                                                            1

 2
                                                                              0
 1
                                                                          -1
 0

-1                                                                        -2
-2
                                                                          -3
-3

-4                                                                        -4
         Jan    Feb      Mar     Apr   May    Jun   Jul#   Aug#   Sep#                Jan     Feb       Mar        Apr   May    Jun   Jul #   Aug #   Sep#
                                       2006                                                                              2006
     Note : (#) provisional figures                                               Note : (#) provisional figures



Sources of data

The data on property prices are obtained through the scrutiny of sales transactions by R&VD
for stamp duty purposes, and from the Day Book of the Land Registry. The data on
property rentals are mainly sourced from the returns on leasing information submitted to
R&VD.

Other technical issues and caveats

The price indices do not cover primary market transactions for two major reasons. First, RV
is not yet available for most of the properties traded in the primary market that are not
completed. Second, there often exists a variety of concessions tied to different price levels
set by the developers, in respect of payment terms, interest rate subsidy, cash rebate, etc,
making like-with-like comparison of prices for different transacted properties very difficult.

In compiling the rental indices, the underlying rental data is analysed on a net basis, exclusive
of rates, management fees and other charges. If the rental charged to tenants already covers
such expenses, adjustment is made to enable like-with-like comparison of different
transactions. By the same token, the effect of rent-free period granted to tenants is
discounted if known. However, the effect of concessions not specified in the contracts
cannot be adjusted in the absence of details.

Both price and rental indices are statistical presentations to indicate a general market trend
only. It is therefore not advisable to use the indices as a substitute for valuation of
individual properties.

(*) This article is jointly prepared by the Rating and Valuation Department and the
    Economic Analysis Division.
                                                                         31
Tourism

3.7       The total number of incoming visitors recorded a solid increase of
6.7% year-on-year in the third quarter of 2006, though this was moderated from
the growth spurt earlier in the year. Moreover, the visitor growth continued to
be broadly based across major source markets, with distinct rise in arrivals from
Europe, North Asia, and South and Southeast Asia. Concurrently, the growth
in incoming Mainland visitors stayed solid. For the first three quarters of 2006
taken together, overall visitor growth stood at 9.5%, exceeding the full-year
average of 7.1% in 2005. Also, this compared favourably with the
corresponding increases in visitor arrivals at many other popular destinations in
the region(1).

               Diagram 3.3 : Inbound tourism maintained a broad-based increase
                                 across market so far this year
           Year-on-year rate of change (%)
     50
                                                                          Long-haul markets
     40                                                                   Rest of Asia
                                                                          Mainland of China
                                                                          All sources
     30


     20


     10


      0


    -10
          Q3          Q4           Q1        Q2           Q3   Q4    Q1          Q2           Q3
               2004                               2005                          2006


      Note : The sharp deceleration in year-on-year growth from mid-2004 to early 2005 was
             mainly due to fading and eventual dissipation of the base impact of SARS.


3.8       Along with the progressive expansion of the Individual Visit Scheme
(IVS), the number of Mainland visitors travelling under this scheme surged
further by 22.9% year-on-year in the first nine months of 2006, with their share
in total Mainland visitor arrivals rising to around 50%. Also, the increasing
popularity of IVS as the mode of travel has reinforced the tendency of Mainland
residents to spread out travel plans into different periods of a year. This
tendency is conceivably a major factor underlying the relatively subdued
performance of Mainland visitor arrivals during the recent Golden Weeks of
Labour Day and National Day. As from January 2007, IVS will be further
extended to cover five more cities in the Mainland, bringing the total to 49(2).
                                                         32
                Diagram 3.4 : Mainland visitor arrivals are now halved by trips
                               under Individual Visit Scheme

        Number (Million)
    4
            Other Mainland visitors
            IVS visitors

    3




    2




    1




    0
          Q3          Q4   Q1     Q2          Q3   Q4    Q1   Q2          Q3   Q4   Q1    Q2    Q3
               2003                    2004                        2005                  2006




3.9       In October 2006, the Government announced its decision to develop
new cruise terminal facilities at the southern end of the former runway in Kai
Tak(3). The development primarily rests with the private sector, to which an
open tender is planned to be invited in late 2007 and awarded by the second
quarter of 2008. There will be two alongside berths which can meet the need
of mega cruise vessels up to a displacement of 100 000 tonnes. The first berth
is targeted for completion in 2012. The new facilities will help Hong Kong to
leverage on the rapid growth of the cruise industry worldwide and in the Asia
Pacific Region. In the first nine months of 2006, the non-local cruise passenger
throughput of Hong Kong surged by 27.3% over a year earlier to 281 100. For
2006 as a whole, 41 international ship calls have been made or confirmed, up
markedly from the corresponding figure of 30 in 2005.

3.10      As regards Hong Kong’s outbound tourism, resident departures rose
steadily further by 3.7% year-on-year in the third quarter, giving an average
growth of 4.4% for the first three quarters of 2006. Sustained pick-up in
consumer spending and increased business connectivity with the Mainland were
the major factors at work. It is estimated that in 2005, 87% of the outbound
trips were destined for the Mainland, of which about two-thirds were personal
travels. Latest indications showed that in 2004, outbound tourism accounted
for 26% of the total direct value added generated by the tourism industry and
0.8% of GDP.



                                                        33
Logistics and maritime

3.11      The logistics sector continued to cruise ahead steadily. Sustained
growth in external trade and transhipment activities, particularly in relation to
the robust Mainland economy, largely contributed. On air freight, cargo
throughput expanded further, albeit at a moderated pace of 3.2% in the third
quarter of 2006. Yet the value of trade (excluding transhipment cargoes)
handled by air actually picked up, to growth at 8.9% in the third quarter as
against that of 7.8% in the second quarter. In recent years, these two indicators
likewise progressed significantly. The increase was consistently more distinct
for the latter, consequential to a rising share of high-value merchandise in air
freight.

3.12     To sharpen Hong Kong’s competitive edge in handling air freight,
on-going efforts are devoted to expand air services network(4) as well as cargo
and passenger capacities of the Hong Kong International Airport (HKIA). For
example, the Airport Authority is constructing 10 additional cargo parking
stands for target completion by end-2007. Besides, two cargo terminal
operators in HKIA are expanding their facilities that will come into operation
by end-2006 and end-2007 respectively.

                 Diagram 3.5 : Despite moderated growth in air cargo volume,
                     the value of trade handled by air actually fared well
                      as the air freight sector moved up the value chain
          Year-on-year rate of change (%)
    40
               Volume of air cargoes
               Value of trade handled by air*
    30


    20


    10


     0


    -10


    -20
          Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
                2001                 2002           2003 2004 2005       2006
          Note : (*) Excluding transhipment cargoes



3.13     On port cargo movement, overall container throughput handled by the
Hong Kong port went up by an estimate of 4.6% in the third quarter of 2006
over a year earlier. This followed an increase of 5.2% in the first half, giving
an estimated rise of 5.0% for the first nine months of 2006.
                                                34
3.14       The container throughput carried by river trade vessels expanded
further by 6.4% in July-August 2006 over a year earlier. This contributed to
an increasing share of river trade vessels in handling cross-boundary container
traffic that reached 50% in the first eight months of 2006. The growth of river
trade is attributable to the extension of cargo catchment from the eastern to the
western part of Pearl River Delta where manufacturing activities have been
taking off in recent years.

               Diagram 3.6 : Port container traffic showed further solid growth
                          as river cargo movements kept booming
          TEUs (Thousands)                                                                   %
   8000                                                                                          40
               Throughput by river vessels (left scale)
   7000        Throughput by ocean vessels (left scale)
               Overall year-on-year change (right scale)                                         30
   6000

   5000
                                                                                                 20

   4000

                                                                                                 10
   3000

   2000
                                                                                                 0
   1000

   0000                                                                                          -10
          Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 *
              2001        2002        2003        2004        2005      2006


      Note :    (*) Preliminary estimate by Hong Kong Port Development Council.      Breakdown
                    in throughput by ocean and river vessels is not available yet.




3.15     To enhance efficiency of cross-boundary cargo flows, the Government
has reached a consensus with Dongguan authorities that an express clearance
system will be adopted at the new Liaobu inland control point when it comes
into operation in late 2006. To attract more cargo businesses into Hong Kong,
the Government introduced the relevant legislation to the Legislative Council in
October 2006 for introducing multiple entry permits for river trade vessels,
reducing permit fees, and streamlining application and entry procedures.

3.16       The competitiveness of the logistics sector reinforces Hong Kong’s
status as an international maritime centre. Currently, Hong Kong is the seventh
largest maritime centre and the fifth largest shipping register in the world(5). Our
competitiveness mainly lies with effective rule of law and high quality of
professional services. The rapid development of the shipbuilding industry in
the Mainland is expected to provide vast business opportunities for Hong
                                                           35
Kong’s maritime business. The Government has been putting on-going efforts
to promote the quality maritime services available in Hong Kong. The
Government will also continue to work for improving shipping register service
and training up maritime professionals.           In addition, the Government
endeavours to continue to negotiate with major trading partners for agreements
to relief double taxation on shipping and air transport incomes.


Creativity and innovation

3.17      In his Policy Address in early October, the Chief Executive highlighted
the need to upgrade Hong Kong’s local economic infrastructure gearing it to
support innovative and high value-added industries. A number of new
initiatives on promoting innovation and information technology, as well as
cultural and creative industries, were announced. Examples include enhanced
financial support for the Hong Kong Design Centre to encourage the use of
design in value-added drive, public consultation on radio spectrum policy
framework, and establishment of a Hong Kong Film Development Council.

3.18     The Digital 21 Strategy, which is the blueprint for development of
information and communications technology (ICT) in Hong Kong, is under
review and update(6). A two-month public consultation on the new strategy
proposed by the Government was kicked off in mid-October. The proposed
strategy identifies five major action areas, with a view to achieving the vision of
building on Hong Kong’s position as a world digital city through advancing
achievements and seizing new opportunities(7). Apart from general
applications, ICT often serves as an important element in the process of
commercialising creative ideas and innovative activities.

3.19       In recent years, innovation activities proliferated in the increasingly
knowledge-based Hong Kong economy. Latest indications revealed that
business expenditure on in-house research and development activities rose
markedly further by 22.5% to $5.6 billion in 2005(8). This brought the total
business expenditure on scientific and technological innovations to a new high
of $18.5 billion. Besides, a large number of business firms were found to
engage in innovations not directly related to science and technology, such as
new aesthetic design of products and new business practices. The proportion
of business firms engaging in one or more types of innovative activities rose
distinctly to about 48.5% in 2005, from 42.8% in 2004.



                                        36
            Diagram 3.7 : Increase in R&D activities led the business expenditure on
              scientific and technological innovations to a new record high in 2005
            HK$ Billion
      20
                R&D expenditure
                Other expenditure on scientific
                 and technological innovations
      15




      10




      5




      0
                   2001                 2002      2003           2004           2005




Notes :

(1)        Based on the official statistics released by the respective regional host markets, the
           year-on-year growth rates for their visitor arrivals in the first nine months of 2006
           stood at 15.4% for Macau, 9.2% for Singapore, 8.8% for the Philippines, 7.2% for
           Japan, 5.6% for Malaysia (up to July), 4.4% for Taiwan, 2.9% for the Mainland, and
           2.5% for South Korea.


(2)        As from 1 January 2007, the Individual Visit Scheme will be further extended to
           Shijiazhuang in Hebei, Zhengzhou in Henan, Changchun in Jilin, Hefei in Anhui and
           Wuhan in Hubei. The Scheme will then cover 49 cities with a population exceeding
           250 million.


(3)        The decision followed the Stage 3 Public Consultation on Kai Tak Planning Review
           that ended in August 2006, by which the public generally supported the development
           of a cruise terminal at the tip of the former runway in Kai Tak. As regards the
           Expression of Interest exercise conducted in late 2005 to gauge market feedback, the
           Government concluded that none of the suggestions received fully met its requirement.


(4)        In June 2006, the General Administration of Civil Aviation of China and the Economic
           Development and Labour Bureau concluded the annual review of the
           Mainland/HKSAR Air Services Arrangement, which would substantially liberalise the
           aviation market between the Mainland and Hong Kong.




                                                  37
(5)   The ranking in respect of maritime centre is compiled by the United Nations
      Conference on Trade and Development Secretariat according to deadweight tonnage of
      the world fleet. As of 1 January 2006, Hong Kong controlled about 44 million tonnes
      of vessels with at least 1 000 gross registered tonnes. The ranking in respect of
      shipping register is based on the gross tonnage of vessels in the register, according to
      the information kept by the Danish Shipowners’ Association. As at September 2006,
      there were 1 128 vessels registered in Hong Kong with a total gross tonnage of
      31.5 million tons.


(6)   The Digital 21 Strategy was first published in 1998 by the Government to set out the
      vision of developing Hong Kong into a leading digital city in a globally connected
      world. The strategy is aimed to outline how the Government, business, industry,
      academia and the public can work together to achieve this goal.  To take account of
      advances in technology and changing needs of the community, the Strategy requires
      constant review. Previous updates were made in 2001 and 2004.


(7)   The five action areas identified by the proposed new Digital 21 Strategy includes (i)
      facilitating a digital economy; (ii) promoting advanced technology and innovation, (iii)
      developing Hong Kong as a hub for technological cooperation and trade, (iv) enabling
      the next generation of public services, and (v) building an inclusive, knowledge-based
      society.


(8)   For details, see the Report on “2005 Annual Survey of Innovation Activities in the
      Business Sector” published by Census and Statistics Department on 26 October 2006.




                                             38
                 CHAPTER 4 : THE FINANCIAL SECTOR#

Summary

     The financial sector was buoyant in the third quarter of 2006, benefiting
     much from the increasing financial integration with the Mainland. Market
     sentiment was well supported by Hong Kong’s strong economic
     fundamentals and the leveling off of US interest rates.

     The monetary conditions remained accommodative, supporting the brisk
     expansion of the economy. The Hong Kong dollar weakened against most
     major currencies along with the US dollar during the third quarter.

     As liquidity in the banking sector was abundant, interbank interest rates
     edged lower. Money supply and bank loans both expanded further in the
     third quarter. Asset quality of the banking sector continued to improve,
     alongside the sustained economic upturn.

     The local stock market enjoyed a stellar performance in the third quarter
     following some consolidation in May and early June. The Hang Seng
     Index surged further in mid-November to reach a record high and market
     capitalisation broke the $11 trillion mark. IPO activity regained vigor
     and attracted much interest from international investors.

     Hong Kong is striving to become a key asset management centre in the
     region. The fund management industry, including the hedge fund business,
     continues to flourish.

•   In his policy address in October, the Chief Executive reiterated the
    importance of enhancing the role of Hong Kong as a world-class
    international financial centre, and announced a wide range of initiatives and
    measures to attain this goal.

                                   _________

(#) This chapter is jointly prepared by the Hong Kong Monetary Authority (HKMA)
    and the Economic Analysis Division.




                                       39
Overall situation

4.1       Amidst Hong Kong’s strong economic upturn, financial sector activity
was generally buoyant in the third quarter of 2006. While the Base Rate
remained unchanged, interbank rates edged lower on the back of amble liquidity
in the banking sector. The money markets showed a healthy development,
with money supply and bank loans increasing further in the third quarter. The
local stock market enjoyed a stellar performance in the third quarter, as the
pause in US interest rate hikes, easing oil prices and strong economic
fundamentals amidst increasing financial integration with the Mainland all
provided support. Public responses to initial public offerings (IPO) of new
stocks were also highly favourable, as investors displayed their confidence in
Hong Kong’s ability to raise capital for mainland enterprises. Funds raised in
the debt market rose, but sales of mutual funds declined.

4.2       The Chief Executive’s Policy Address in mid-October reiterated the
need for Hong Kong to strengthen its position as Asia’s premier international
financial centre. A range of measures, including allowing well-established
enterprises of diverse international origins to be listed in Hong Kong, the
establishment of the Financial Reporting Council, and the hosting of the Asian
Financial Forum, will serve to boost Hong Kong’s international credentials. In
addition, to deepen financial integration between Hong Kong and the Mainland,
the Government is prepared to launch new Renminbi business in Hong Kong,
including the settlement of accounts of direct Mainland imports in Renminbi
and issuance of Renminbi bonds in Hong Kong. Finally, Hong Kong intends
to develop a wide range of risk management instruments to cater to the needs of
the Mainland market. The SAR will explore the potential of developing a
commodity futures market, attracting more offshore securities investment
businesses of Mainland insurance agencies, and providing reinsurance services
for the Mainland.

Interest rates, aggregate balance and exchange rates

4.3       As a result of the pause in interest rate hikes in the US, the Base Rate
under the Discount Window operated by the HKMA remained stable at 6.75%
at end-September 2006(1). Hong Kong dollar interbank interest rates declined
during the period, however, due to abundant liquidity in the local banking sector.
In particular, overnight and 3-month HIBORs decreased to an average of 3.68%
and 4.21% respectively in the third quarter. Meanwhile, the discount of
three-month HIBOR over the corresponding Euro-dollar deposit rate widened
from 99 basis points at end-June to 119 basis points at end-September 2006.
                                       40
Separately, the Hong Kong dollar yield curve moved downwards at
end-September 2006 compared with end-June.


              Diagram 4.1 : Hong Kong dollar yield curve was below its
              US counterpart at end-September 2006, as liquidity in the
                        banking sector remained abundant
         Percent per annum
   5.4
                                                                           US Treasuries
                                                                          (end-June 2006)
   5.0
                           US Treasuries
                       (end-September 2006)
   4.6

                                     Exchange Fund
   4.2                                 Bills/Notes
                                     (end-June 2006)

   3.8
                                                                  Spread of yield between US Treasuries
                              Exchange Fund Bills/Notes           and Exchange Fund Bills/Notes
   3.4                          (end-September 2006)              at end-September 2006 :
                                                                  6-month Time to Maturity : 135 b.p.
                                                                  5-year Time to Maturity : 79 b.p.
                                                                  10-year Time to Maturity : 72 b.p.
   3.0
     0
         1M       3M         6M         1Y         2Y         3Y              5Y            7Y            10Y
                                               Time to Maturity



4.4       Movements in deposit rates and the best lending rates varied across
different banks in the third quarter of 2006, but they generally either showed
small declines or remained unchanged. There were still two best lending rates
of 8% and 8.25% in the market. The composite interest rate declined from
3.16% at end-June 2006 to 3.06% at end-September 2006(2). Meanwhile, the
Aggregate Balance was little changed at around HK$1.3 billion.




                                                  41
   Diagram 4.2 : Aggregate balance in the banking system remained stable, while
          interbank interest rates edged lower during the third quarter
                                             (end for the week)
           Percent per annum                                                                    HK$Bn
     9                                                                                                    40
                                                                            Best lending rate
     8                                                                                                    35
                                                                                  Base rate under the
     7                                                                            Discount Window
                                                                                                          30
     6
                                                                                                          25
                                                                                         Three-month
     5                                                                                     HIBOR
                                                                                                          20
     4
                                                                                                          15
     3                                                                       Overnight
                                                                              HIBOR
                                                                                                          10
     2

     1                                                                 Aggregate balance                  5
                                                                         (right scale)
     0                                                                                                    0
         5 Jun 7 Aug 9 Oct 11 Dec 12 Feb 16 Apr 18 Jun 20 Aug 22 Oct 24 Dec 25 Feb 29 Apr 1 Jul   2 Sep
                   2004                              2005                              2006




4.5       The Hong Kong dollar exchange rate softened slightly against the US
dollar in the third quarter, reportedly relating to interest carry trade to take
advantage of the widening negative Hong Kong-US interest rate differentials.
The spot exchange rate of Hong Kong dollar against the US dollar closed at
7.7875 at end-September 2006, compared with 7.7665 at end-June. Over the
same period, the discount of the twelve-month Hong Kong dollar forward rate
over the spot rate increased from 530 pips (each pip equivalent to HK$0.0001)
to 720 pips.




                                                       42
4.6        Under the Linked Exchange Rate System, movements in the exchange
rate of the Hong Kong dollar against other currencies follow closely those in the
US dollar. In the third quarter, the US dollar weakened against the Pound
Sterling and the Euro, and strengthened against the Japanese Yen. As a result,
the trade-weighted Nominal and Real Effective Exchange Rate Indices(3) of the
Hong Kong dollar dropped by 0.4% and 0.5% respectively during the quarter.

          Diagram 4.3 : The Hong Kong dollar                             Diagram 4.4 : Trade-weighted Effective
         softened slightly against the US dollar,                        Exchange Rate Index of the Hong Kong
              but forward spread widened                                    dollar fell further in tandem with
                   (end for the week)                                           the weakening US dollar
                                                                                 (average for the month)
         HK$/US$                                                         Index (Jan 2000 = 100)
  7.90                                                             110
                           HK$/US$
                          three-month
  7.85          HK$/US$ forward rate                               105
                spot rate
                                                                                               Nominal EERI
                                            Linked Rate
  7.80                                                             100


  7.75                                                              95


  7.70                                                              90            Real EERI
                          HK$/US$
                        twelve-month                                               Real EERI
  7.65                   forward rate                               85


  7.60                                                              80


  7.55
     0                                                              75
                                                                     0
     5 Jun 18 Sep 1 Jan 16 Apr 30 Jul 12 Nov25 Feb 10 Jun 23 Sep
       Jun                                                               M J S DM J S DM J S DM J S DM J S DM J S
         2004               2005                   2006
                                                      2006                2001 2002     2003 2004 2005 2006




                                                             43
Money supply and deposits

4.7       The monetary conditions remained largely accommodative, in support
of the brisk economic expansion. During the third quarter of 2006, both
narrow and broad money supply recorded increases. The seasonally adjusted
Hong Kong dollar narrow money supply (HK$M1)(4) advanced by 4.8% over a
quarter earlier, partly reflecting increases in Hong Kong dollar demand deposits
associated with IPO activities. Hong Kong dollar broad money supply
(HK$M3) rose by 5.8%, with savings and time deposits increasing by 5.1% and
6.9% respectively.


【】


   Notes: (^)   Figures refer to the positions at end of quarter.
          (#)   Adjusted to include foreign currency swap deposits.


4.8      Total deposits with authorized institutions(6) expanded by 5.1% to
$4,551 billion (comprising Hong Kong dollar deposits of $2,442 billion and
foreign currency deposits of $2,109 billion) at end-September 2006 over
end-June 2006.




                                                   44
    Loans and advances

    4.9       Total loans and advances increased by 3.3% to $2,498 billion
    (comprising Hong Kong dollar loans of $1,932 billion and foreign currency
    loans of $566 billion) at end-September 2006 over end-June 2006. Loans
    analysed by economic uses were mixed in the third quarter. In particular,
    loans to stockbrokers registered a more than sixfold increase, partly reflecting
    increased borrowings relating to the IPO of China Merchants Bank. On the
    other hand, loans for purchase of residential property and lending to building,
    construction, property development and investment, which together accounted
    for about half of the domestic loans, shrank by 0.5% and 0.7% respectively.
    Meanwhile, the Hong Kong dollar loan-to-deposit ratio decreased from 80.9%
    in June to 79.1% in September.

              Table 4.1 : Loans and advances for use in Hong Kong by major usage

                      Loans to :
                                                   Building,
                                         Whole- construction,
                                           sale     property       Purchase                      All loans
% change                Finance Manu-      and   development          of                       and advances
during                  visible facturing retail      and         residential Financial Stock-   for use in
the quarter              Trade    sector trade    investment      property(a) concerns brokers Hong Kong(b)

2005 Q1                    2.4       8.1     -0.6        4.3           0.6       -0.8      5.8          1.6
     Q2                   12.6       7.4      5.9        2.7           1.1        3.4     10.9          4.0
     Q3                   -1.9      -2.4     -1.6        2.1          -1.1        2.2     -7.8            *
     Q4                   -3.8       6.4     -1.2        7.6          -1.3        1.0    -36.6          2.0

2006 Q1                   -2.4      -1.9      0.9        0.6          -1.1        3.6      5.3         -0.3
     Q2                   10.1       3.7      1.9        5.7          -0.6       -1.3     -6.0          2.8
     Q3                    4.9      -4.4      1.4       -0.7          -0.5        6.2    620.6          2.2

Total amount at the       160       109      105        475           593        193        48       2,170
end of September
2006 (HK$Bn)

% change                  8.4       3.4     3.0         13.7          -3.5       9.6      352.2        6.8
over a year earlier


    Notes :    (a)     Figures also include loans for the purchase of flats under the Home Ownership Scheme,
                       Private Sector Participation Scheme and Tenants Purchase Scheme, in addition to those for
                       the purchase of private residential flats.

               (b)     Loans to individual sectors may not add up to all loans and advances for use in Hong Kong,
                       as some sectors are not included in this table.

               (*)     Change of less than 0.05%.


                                                      45
                Diagram 4.6 : Hong Kong dollar loan-to-deposit ratio fell
                  in the third quarter as deposits rose faster than loans
            Percent
      92

      90

      88                                             Hong Kong dollar
                                                   loan-to-deposit ratio*
      86

      84

      82

      80

      78

       0
      76
           Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
               2001        2002        2003        2004        2005      2006


     Note :    (*)    Hong Kong dollar deposits have been adjusted to include foreign currency swap
                      deposits.


Banking

4.10       Asset quality of the local banking sector improved further in the
second quarter of 2006. The ratio of classified loans to total loans of retail banks
fell further from 1.32% at end-March 2006 to 1.28% at end-June 2006. Over
the same period, the arrears for over three months in credit card repayment
remained stable at 0.40%. Separately, the delinquency ratio for residential
mortgage loans was also stable at 0.20% at end-September 2006, when
compared with a quarter ago. The consolidated capital adequacy ratio for local
banks averaged at a strong level of 15.2% at end-June 2006, well above the
minimum international standard of 8% set by the Bank for International
Settlements.

4.11      Hong Kong will follow the Basel Committee on Banking
Supervision’s timetable for implementing the new capital adequacy standards
for banks (“Basel II”) from January 2007. Since August 2004, the HKMA has
issued for public consultation detailed proposals of its policies and standards
relating to the implementation approach and the core requirements of the new
framework. The banking industry endorses the proposals as pragmatic and the
policy setting stage is now complete. To provide a legal framework for
                                                  46
implementing Basel II in Hong Kong, the Banking (Amendment) Ordinance
2005 was enacted on 6 July 2005 under which the HKMA will issue capital and
disclosure rules in consultation with the Financial Secretary, the statutory
advisory committees and the industry associations. A draft Banking (Capital)
Rules and a draft Banking (Disclosure) Rules were released during the third
quarter of 2006 for consultation. A final draft of these Rules, incorporating
comments received in the consultation which has been completed, is scheduled
to be introduced to the Legislative Council for negative vetting in early
November 2006. The new framework aligns regulatory capital requirement
more closely with the inherent risks of banks, encouraging banks to improve
risk management. Adopting the latest international banking standards in this
respect will contribute to the safety and soundness of the banking system in
Hong Kong and help to strengthen the position of Hong Kong as a leading
international financial centre.

                       Table 4.2 : Asset quality of retail banks(a)
                                          (as % of total loans)

As at the end of             Pass loans           Special mention loans    Classified loans
                                                                               (gross)

2005 Q1                        94.30                         3.75                1.95
     Q2                        95.05                         3.21                1.74
     Q3                        95.26                         3.25                1.49
     Q4                        95.97                         2.66                1.37

2006      Q1                   95.97                         2.71                1.32
          Q2                   96.33                         2.39                1.28
Notes :    (a)   Period-end figures relate to Hong Kong offices and overseas branches. Loans and
                 advances are classified into the following categories: Pass, Special Mention,
                 Substandard, Doubtful and Loss. Loans in the substandard, doubtful and loss
                 categories are collectively known as “classified loans”.

           Due to rounding, figures may not add up to 100.



4.12       Since February 2004, banks in Hong Kong have been offering
renminbi deposit-taking, exchange and remittance services to customers. At
end-September 2006, a total of 40 licensed banks were engaged in renminbi
banking business in Hong Kong.          Renminbi deposits with authorized
institutions remained largely stable, amounting to RMB 22.6 billion yuan at
end-September 2006. Meanwhile, the share of renminbi deposits in total
foreign currency deposits with all authorized institutions remained small at
around 1% at end-September.



                                                  47
                 Table 4.3 : Renminbi deposits in licensed banks
                                                                    Interest rates on(a)
                                                                                                    Number of
                   Demand and                                                                     licensed banks
                     savings          Time          Total       Saving         Three-month          engaged in
As at end of        deposits(b)     deposits      deposits      deposits(c)   time deposits(c)   RMB business(d)
                   (RMB Mn)        (RMB Mn)      (RMB Mn)          (%)             (%)

2005      Q1           6,440         8,536        14,976          0.46            0.65                 38
          Q2           9,358        11,540        20,898          0.46            0.65                 39
          Q3          10,219        12,425        22,643          0.46            0.65                 38
          Q4          10,620        11,966        22,586          0.46            0.65                 38

2006      Q1          10,682        11,776        22,458          0.46            0.65                 39
          Q2          11,285        11,427        22,712          0.46            0.65                 39
          Q3          11,355        11,264        22,619          0.46            0.65                 40

Notes :    (a)   The interest rates are sourced from a survey conducted by the HKMA.

           (b)   Before March 2006, figures referred to savings deposits only.

           (c)   Period average figures.

           (d)   Licensed banks started to offer RMB deposit taking, currency exchange and remittance
                 services on 25 February 2004.




The debt market

4.13      Hong Kong’s debt market continued to grow both in size and in depth,
reinforcing the role of Hong Kong as an international financial centre. In the
first three quarters of 2006, gross issuance of Hong Kong dollar debt increased
by 8.5% over a year earlier to $344 billion. At end-September 2006, the total
outstanding value of all Hong Kong dollar debt securities rose further by 3%
over end-June 2006 to $723 billion(6). This was equivalent to 27% of HK$M3,
or 20% of the Hong Kong dollar-denominated assets of the entire banking
sector(7). Around 73% of the outstanding debt were issued by the private
sector and Multilateral Development Banks, while the remaining 27% were
issued by the public sector, including mainly Exchange Fund papers and debt
issued by the Government and statutory organizations. The Government will
continue to devote effort in promoting liquidity and building an efficient
financial infrastructure for development of the debt market.

4.14   In recognition of Hong Kong’s strong financial position, sound
economic fundamentals, and a noted resilience to economic shocks from the
Mainland and beyond due to Hong Kong’s large external creditor position, a
                                                48
       number of rating agencies have upgraded Hong Kong’s foreign currency ratings.
       Following various upgrades from May to August, Moody’s upgraded both the
       region’s long-term foreign currency rating and foreign-currency bank deposit
       ceiling from “A1” to “Aa3” in late September. With this upgrade, Hong Kong
       has now attained AA-category ratings by all major international credit rating
       agencies. These ratings are the highest that Hong Kong has achieved. And for
       the first time, Moody’s Hong Kong rating is above that of the Mainland by more
       than one notch. Such upgrades help to provide an enhanced pro-growth
       environment by lowering corporate borrowing costs for Hong Kong businesses.

                              Table 4.4 : New issuance and outstanding value of
                                     HK dollar debt securities (HK$Bn)


                             Statutory
                           bodies/govern               Public                            Non-MDBs Private
                 Exchange ment-owned Govern-           sector                   Local     overseas    sector
                Fund paper corporations ment            total        AIs(a)   corporates borrowers(b) total MDBs(b)   Total

New Issuance

2005 Annual         213.8           8.5        -       222.3         62.6        9.9      105.4     177.9     1.8     402.0
     Q1              52.0           1.3        -        53.4         18.0        1.1       31.1      50.3     -       103.7
     Q2              53.1           2.3        -        55.4         20.1        2.4       36.3      58.7     1.1     115.3
     Q3              54.1           1.9        -        56.0         11.7        4.7       24.5      40.9     0.7      97.6
     Q4              54.4           3.0        -        57.4         12.8        1.7       13.5      28.0     -        85.4

2006 Q1              54.4           6.9        -        61.3         14.1        7.0       35.6      56.7     0.2     118.2
     Q2              55.6           3.5        -        59.1         12.0        1.2       42.0      55.2     -       114.3
     Q3              54.1           2.6        -        56.7         10.0        7.0       35.5      52.5     1.8     111.0


Outstanding (period-end figures)

2005 Q1             123.2          57.3      10.3      190.8     145.9          32.0      228.7     406.6    23.5     620.9
     Q2             124.3          56.1      10.3      190.7     148.4          33.3      248.1     429.7    23.6     644.1
     Q3             125.4          57.1      10.3      192.8     154.1          36.4      257.1     447.6    24.1     664.5
     Q4             126.7          57.7      10.3      194.7     153.4          38.1      256.0     447.5    21.5     663.7

2006 Q1             127.9          59.3      10.3      197.5     154.3          44.7      270.0     469.0    17.5     684.0
     Q2             129.3          54.0      10.3      193.6     152.9          43.3      295.3     491.5    17.1     702.2
     Q3             130.4          54.1       7.7      192.2     151.7          48.0      312.5     512.2    18.5     722.9


   Notes:      Figures may not add up to the corresponding totals due to rounding.

               (a) AIs : Authorized Institutions.

               (b) MDBs : Multilateral Development Banks.




                                                                49
The stock and futures markets

4.15      Following momentary weakness towards the middle of 2006, the stock
market regained its buoyancy in the third quarter. The earlier market fears of
potential US monetary over-tightening were by and large dissipated. IPO
activity also regained much vigor, along with upbeat market sentiment. In
addition, an upbeat economic outlook, recent declines in oil prices, revived
speculation on further Renminbi appreciation, and strong US stock market
performance were all supportive factors. The Hang Seng Index closed at
17 543 at end-September 2006, 7.8% higher than at end-June 2006. Yet
average daily turnover, at $26.3 billion in the third quarter, was 23% lower than
the record high in the preceding quarter. The stock market displayed further
strength in October and early November, with the Hang Seng Index closing at
an all-time high of 19 093 on 15 November.


                Diagram 4.7 : The stock market surged further during the
                      third quarter after a brief correction in May
             Index                                                                          Percent
   18000                                                                                              14
   17000
                                                  Real GDP                   Hang Seng Index*         12
   16000                                       (Year-on-year                    (left scale)
                                               rate of change)
   15000                                         (right scale)                                        10
   14000
                                                                                                      8
   13000
   12000                                                                                              6
                                                           Dow Jones Industrial Average Index*
   11000                                                               (left scale)
                                                                                                      4
   10000
    9000                                                   3-month HIBOR                              2
                                                             (right scale)
    8000
                                                                                                      0
    7000
       0
    6000                                                                                              -2
           Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
               2001        2002        2003        2004        2005      2006



     Note:     (*)   Period average figures.


4.16      Market capitalisation rose markedly to a fresh record high of $10,604
billion at end-September 2006 (comprising $10,526 billion in the Main Board
and $78 billion in the Growth Enterprise Market), mainly due to the new listings
of several large Mainland enterprises during the third quarter. Market
capitalisation rose further in October and broke the $11 trillion mark on 20
                                                     50
October.       According to the World Federation of Exchanges(8), at
end-September 2006, the Hong Kong stock market was the eighth largest in the
world and second largest in Asia in terms of market capitalisation. In the first
nine months of 2006, equity capital raised through new share flotations and
post-listing in the Main Board surged markedly to $247.5 billion, while that in
the GEM amounted to $7.3 billion(9). The total value of IPO of new stocks
raised during the period was ranked third internationally among major
international stock exchanges. The successful listing of Industrial and
Commercial Bank of China in October should have helped to advance Hong
Kong’s ranking in this aspect even further.


               Diagram 4.8 : Total market capitalisation hit record high
                                 in the third quarter
          HK$Mn                                                                     HK$Bn
 35,000                                                                                     12,000
               Market capitalisation* (right scale)
               Average daily turnover (left scale)
 30,000
                                                                                            10,000

 25,000
                                                                                            8,000

 20,000
                                                                                            6,000
 15,000

                                                                                            4,000
 10,000

                                                                                            2,000
  5,000


     0                                                                                      0
          Q1     Q2 Q3        Q4     Q1    Q2 Q3      Q4   Q1   Q2 Q3   Q4   Q1    Q2 Q3
                  2003                      2004                 2005             2006


     Note:   (*)     Position at end of quarter.



4.17       Hong Kong continues to serve as the premier fund-raising centre for
Mainland enterprises. In the first nine months of 2006, they raised a total of
$178.7 billion from the Hong Kong stock market. This sum made up 70% of
the total equity raised during that period. Since January 1993, $1,281.3 billion
of capital has been raised by Mainland enterprises in the Hong Kong stock
market, accounting for 53% of the total funds raised. At end-September 2006,
there were 352 Mainland enterprises (including 133 H-share companies,
90 “Red Chips” companies and 129 private enterprises) listed on the Hong
Kong stock market, accounting for 31% of the total number of listed companies.
                                                      51
The market capitalisation of these Mainland enterprises expanded sharply to
$4.7 trillion, which accounted for 44% of the total market capitalisation of the
Hong Kong stock market. In the first nine months of 2006, 57% of the market
turnover in the stock market was contributed by trading of the above
Mainland-related stocks.

4.18      In the third quarter of 2006, derivatives trading remained bouyant
notwithstanding a quieter stock market towards the latter part of the quarter.
The average daily turnover of the Hang Seng Index Futures contracts, Hang
Seng Index options contracts, H-shares Index Futures contracts, and stock
options contracts were all higher, by 15% - 89% over a year earlier(10). Stock
futures also surged from a low base.

             Table 4.5 : Average daily turnover of derivatives contracts
                           of the Hong Kong stock market

                     Hang Seng      Hang Seng         H-shares      Stock      Stock
                   Index Futures   Index Options    Index Futures   Options   Futures


2005      Annual      40 205          12 462            8 027       35 385      53


          Q1          38 872          10 243            7 510       26 583      45
          Q2          36 396          11 266            7 492       23 907      34
          Q3          42 122          14 543            8 809       49 784      71
          Q4          43 294          13 603            8 242       40 304      61


2006      Q1          46 638          14 287          17 436        61 863     163
          Q2          54 535          17 141          22 703        65 038     299
          Q3          50 281          16 671          16 670        66 836     553


% change in             19.4            14.6             89.2         34.3    678.9
Q3 2006 over
a year earlier



Fund management and investment funds

4.19     The depth and breadth of investment funds managed in Hong Kong
continued to increase, as Hong Kong strives to evolve as Asia’s leading asset
management centre. In the third quarter of 2006, gross sales of mutual funds(11)
amounted to US$3,867 million, still very sizeable, though down from the
                                               52
exceptionally high level in the second quarter. After deducting redemptions,
net sales amounted to US$241 million in the third quarter of 2006, likewise
down from the second quarter, yet still higher than in the same quarter last year.
Analysed by asset size, equity funds continued to take up a predominant portion,
accounting for 68% of the total value of funds at end-September 2006. Funds
managed under the MPF schemes continued to grow notably. The aggregate
net asset value of the approved constituent funds rose to $182.5 billion at
end-September 2006, from $170.5 billion at end-June 2006(12).

4.20        The hedge funds business continued to prosper, bolstered by the robust
financial market conditions. There were 14 retail hedge funds authorised by
the Securities and Futures Commission (SFC) and the net asset size of
SFC-authorized hedge funds rose further to US$1.54 billion as at
end-September 2006, up by 4.3% from end-June 2006. The net asset size at
end-September 2006 was more than 8.6 times larger than that as at end-2002,
the year when the hedge funds guidelines were first issued. According to a
recent survey by the SFC in October 2006, as at 31 March 2006, there were 296
hedge funds managed in Hong Kong by our licensed hedge funds managers.
The total asset under management amounted to US$33.5 billion. As the
presence of hedge funds can contribute to or may adversely impact financial
stability, the SFC is building partnership with other regulators, whether local or
overseas, as well as the industry itself to build a fair and transparent regulatory
framework with the primary objective to safeguard investor interests. Besides,
the co-operation can also facilitate market and product development, maintain
market confidence and promote high standards.

Insurance

4.21      The insurance sector continued to grow along with the economic
expansion. Gross premium income from new long-term business and general
business increased significantly further by 12.6% in the second quarter of 2006
over a year earlier(13). Growth in long-term business, which consisted mainly
of individual life and annuity business, continued to surge. This served to
offset the decline in gross premium from non-life business. The greater
demand for the former type of products reflected partly the increase in
employment income amidst the economic upturn, and also the increasing
awareness of the needs for individual risk coverage and retirement planning.




                                        53
                  Table 4.6 : Insurance business in Hong Kong (HK$Mn)

                         General business :                                 Premium for long-term business* :

                                                                                                        Gross
                                                                                                       premium
                                                                                                         from
                                              Individual Individual                                   long-term
                                               life and   life and  Other    Non-retirement   All      business
                 Gross     Net  Underwriting   annuity    annuity individual scheme group long- term and general
                premium premium    profit    (non-linked) (linked) business     business    business   business

2004 Annual     23,478      16,578        1,957         19,722     18,515         195           163         38,595     62,073


2005 Q1         6,944        4,909            63        4,814       4,209          45           41          9,109      16,053
     Q2         6,171        4,422            141       6,099       5,376          41           48          11,564     17,735
     Q3         5,704        4,177            433       5,749       5,281          43           39          11,112     16,816
     Q4         5,069        3,525        1,210         7,628       6,385          49           32          14,094     19,163

     Annual     23,888      17,033        1,847         24,290     21,251         178           160         45,879     69,767

2006 Q1         6,795        4,881            637       4,868       7,284          37           52          12,241     19,036
     Q2         5,337        3,951            723       5,360       9,195          41           38          14,634     19,971

% change from   -13.5        -10.7        412.8         -12.1        71.0           #          -20.8            26.5    12.6
2005 Q2 to
2006 Q2

 Notes: (*)     Figures refer to new businesses only.   Retirement scheme businesses are excluded.
          (#)   Change of less than 0.05%




                                                         54
Notes :

(1)   At present, the Base Rate is set at either 150 basis points above the prevailing US Fed
      Funds Target Rate or the average of the five-day moving averages of the overnight and
      one- month HIBORs, whichever is higher.

(2)   In December 2005, the HKMA published a new data series on composite interest rate,
      reflecting movement in various deposit rates, interbank and other interest rates to
      closely track the average costs of funds of banks. The published data enable the
      banks to keep track of changes in funding cost and thus help improve interest rate risk
      management in the banking sector.

(3)   The trade-weighted Nominal Effective Exchange Rate Index (EERI) is an indicator of
      the overall exchange value of the Hong Kong dollar against a fixed basket of other
      currencies. Specifically, it is a weighted average of the exchange rates of the Hong
      Kong dollar against some 14 currencies of its major trading partners, with the weights
      adopted being the respective shares of these trading partners in the total value of
      merchandise trade for Hong Kong during 1999 and 2000.

      The Real EERI of the Hong Kong dollar is obtained by adjusting the Nominal EERI
      for relative movements in the seasonally adjusted consumer price indices of the
      respective trading partners.

(4)   The various definitions of the money supply are as follows:

      M1 : notes and coins with the public, plus customers’ demand deposits with
           licensed banks.
      M2 : M1 plus customers’ savings and time deposits with licensed banks, plus
           negotiable certificates of deposit (NCDs) issued by licensed banks, held outside
           the monetary sector as well as short-term Exchange Fund placements of less
           than one month.

      M3 : M2 plus customers’ deposits with restricted licence banks and deposit-taking
           companies, plus NCDs issued by such institutions and held outside the
           monetary sector.
      Among the various monetary aggregates, more apparent seasonal patterns are found in
      HK$M1, currency held by the public, and demand deposits.

(5)   Authorized institutions include licensed banks, restricted licence banks and
      deposit-taking companies. At end-September 2006, there were 137 licensed banks,
      32 restricted licence banks and 34 deposit-taking companies in Hong Kong.
      Altogether, 203 authorized institutions (excluding representative offices) from 31
      countries and territories (including Hong Kong) had a presence in Hong Kong.

(6)   The figures for private sector debt may not represent a full coverage of all the Hong
      Kong dollar debt paper issued.

(7)   Assets of the banking sector include notes and coins, amount due from authorized
      institutions in Hong Kong as well as from banks abroad, loans and advances to
      customers, negotiable certificates of deposits (NCDs) held, negotiable debt instruments
      other than NCDs held, and other assets. Certificates of indebtedness issued by
      Exchange Fund and the counterpart bank notes issued are nevertheless excluded.
                                             55
(8)   The ranking is sourced from the World Federation of Exchanges, a global trade
      association for the stock exchange industry. Its membership comprises 54 stock
      exchanges, covering almost all globally recognised stock exchanges.

(9)   At end-September 2006, there were 954 and 198 companies listed on the Main Board
      and GEM respectively.

(10) At end-September 2006, there were 44 classes of stock options contracts and 43 classes
     of stock futures contracts.

(11) These figures are sourced from the Sales and Redemptions Survey conducted by the
     Hong Kong Investment Funds Association on their members, and cover only the active
     authorized funds that have responded to the survey. To provide a more accurate
     picture of the retail fund market in Hong Kong, the survey has been revamped, with
     effect from 2005, such that it would cover only retail transactions (including
     switching) and exclude institutional transactions. At end-September 2006, there were
     a total of 1 078 authorized-funds covered by the Survey.

(12) There were 19 approved trustees at end-September 2006. On MPF products, 37
     master trust schemes, two industry schemes and two employer sponsored schemes,
     comprising altogether 313 constituent funds, were approved by the Mandatory
     Provident Fund Schemes Authority. A total of 234 000 employers, 2.08 million
     employees and 382 000 self-employed persons have participated in MPF schemes.

(13) As at end-September 2006, there were 181 authorized insurers in Hong Kong. Within
     this total, 47 were engaged in long-term insurance business, 115 in general insurance
     business, and 19 in composite insurance business. These authorized insurers come
     from 23 countries and territories (including Hong Kong).




                                            56
                  CHAPTER 5 : THE LABOUR SECTOR

Summary

•   Stronger labour demand was evident in various major economic sectors and
    occupations, leading to an extensive improvement in labour market
    conditions in the third quarter of 2006.

•   Total employment expanded visibly to a new high of nearly 3.5 million,
    while the seasonally adjusted unemployment rate moved further down to a
    62-month low of 4.7%.

•   The underemployment rate fell notably, as more full-time jobs were
    available to workers at the lower segment especially those engaged as craft
    and related workers, and plant and machine operators and assemblers.

•   Labour wages and earnings, whilst still up modestly in overall terms,
    exhibited considerable variations among different industries and job
    categories.

Overall labour market situation

5.1        Comparing the third quarter of 2006 with the preceding quarter, there
was an abrupt surge in first-time job-seekers, comprising mostly fresh graduates
and school leavers looking for work during the summer months. Partly
boosted by these newcomers, the labour supply showed an accelerated increase
to a new high of 3.68 million. Even so, the number of unemployed persons
was only slightly up by 1 300 to 180 400. This was due to the offsetting effect
of a strong expansion in labour demand, thereby pushing total employment to
an all-time high of nearly 3.5 million. Discounting the seasonality of
summer-time job-seekers, the seasonally adjusted unemployment rate(1) actually
fell steadily further to 4.7%, the lowest level since mid-2001. Meanwhile, the
underemployment rate(2) also dropped to 2.3%.




                                       57
                                 Diagram 5.1 : Both the unemployment and underemployment rates
                                 dropped alongside the sustained pick-up in economic activity
                       Percent
               10.0
                9.0
                                                                                                                  Seasonally adjusted
                8.0                                                                                               unemployment rate
                7.0
                6.0
                5.0
                4.0
                3.0
                                                                                               Underemployment rate
                2.0
                1.0
                0.0
                        Q1     Q2      Q3    Q4    Q1    Q2     Q3     Q4    Q1    Q2     Q3     Q4    Q1    Q2     Q3     Q4    Q1    Q2     Q3     Q4    Q1    Q2     Q3
                                    2001                      2002                      2003                      2004                      2005                 2006
 Seasonally adjusted     4.5     4.5   5.2   6.2   7.0   7.7     7.4   7.2   7.5   8.6     8.3   7.4   7.3   6.8     6.8   6.6   6.1    5.8    5.4   5.2   5.2   5.0    4.7
 unemployment rate
 Underemployment         2.3     2.2   2.5   3.0   3.2   2.9     2.9   3.1   2.9   4.3     3.6   3.3   3.4   3.5     3.2   3.1   3.1    2.8    2.6   2.5   2.3   2.7    2.3
 rate



Total employment and labour supply

5.2       The latest improvement in labour market conditions was primarily
demand-led.      Between the second and third quarters of 2006, total
             (3)
employment leaped by 68 600 or 2.0% to a record high of 3 496 100. This
quarter-to-quarter growth was the largest since end-1997, both in absolute and
percentage terms. Moreover, employment gains were not just concentrated in
the service sectors, such as restaurants, transport, real estate, financing and
business services, but extended to the manufacturing and construction sectors.
More job opportunities thus became available to people at the lower segment of
the market especially craft and related workers and workers in elementary
occupations. The majority of the new jobs created were full-time in nature,
reflecting the generally more positive attitude adopted by employers towards
staff recruitment amid the continued economic upturn. On a year-on-year
comparison, total employment also grew visibly, by 3.3%.

5.3       Labour supply(4) likewise had an accelerated growth, by 1.9% over the
quarter and 2.4% over a year earlier to a new high of 3 676 500. The growth
came mainly from two sources. First, there was an influx of fresh graduates
and school leavers into the labour market during the summer months. While
this was a normal seasonal phenomenon, the larger inflow in this year than last
was partly induced by the generally better job opportunities available to the new
entrants. Secondly, the supply of older workers aged 50 or above also went up,
as additional vacancies were found at the lower end of the market as well.
Nevertheless, these particular groups of workers appeared to have been largely
absorbed into employment during the quarter.


                                                                                           58
                  Table 5.1 : The labour force, and persons employed,
                              unemployed and underemployed
                                                                                         Persons                 Persons
                                    Labour force         Persons employed               unemployed(a)         underemployed

2005 Annual                   3 584 600       (0.9)     3 384 000             (2.3)       200 600                98 600

      Q1                      3 571 000       (1.2)     3 359 900             (2.4)       211 000               110 000
      Q2                      3 571 900       (0.8)     3 367 300             (2.0)       204 600               100 500
      Q3                      3 590 700       (1.0)     3 385 300             (2.4)       205 400                94 700
      Q4                      3 604 800       (0.8)     3 423 400             (2.3)       181 500                89 200

2006 Q1             3 606 700                 (1.0)     3 426 200             (2.0)       180 500                82 600
      Q2            3 606 600                 (1.0)     3 427 500             (1.8)       179 000                96 000
 Three months ending
      Jul           3 639 200                (1.5)      3 452 600             (2.4)       186 600                93 400
      Aug           3 662 700                (1.8)      3 473 800             (2.7)       188 900                88 800
      Sep           3 676 500                (2.4)      3 496 100             (3.3)       180 400                86 200
                                             <1.9>                            <2.0>

Notes :     (a)        These include first-time job-seekers and re-entrants into the labour force.
            ( )        Year-on-year % change.
            <>         % change between Q2 and Q3 (i.e. July-September).

Source : General Household Survey, Census and Statistics Department.


           Diagram 5.2 : Growth in employment and labour force both accelerated,
           with the former still outstripping the latter on a year-on-year comparison

               (a) Year-on-year rate of change                     (b) Quarter-to-quarter rate of change
           Percent                                                  Percent
     5                                                       2.5

     4                                  Total                2.0                        Total
                                      employment                                      employment
     3               Total labour                            1.5
                        force
     2                                                       1.0

     1                                                       0.5

     0                                                       0.0
                                                                                               Total labour
     -1                                                     -0.5                                  force

     -2                                                     -1.0

     -3                                                     -1.5
          Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                      Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
           2001  2002  2003  2004  2005  2006                       2001 2002 2003 2004 2005 2006




                                                          59
Profile of unemployment

5.4       Whereas the number of unemployed persons edged up by only 1 300
between the second and third quarters of 2006, this small increase concealed
fairly wide fluctuations within the three-month period. Specifically, the
numbers unemployed jumped to 188 900 in June – August, before falling back
to 180 400 in July – September. This erratic profile had been largely affected
by the entry of fresh graduates and school leavers in July and August, and
subsequently by the return of some of these people to schools in September
upon the start of the new academic year. Discounting this seasonal factor, the
seasonally adjusted unemployment rate had actually remained on a steady
downtrend, drifting down further from 5.0% in the second quarter to a 62-month
low of 4.7% in the third quarter. A sectoral breakdown revealed that there
were visible declines in unemployment rate in both the construction and
manufacturing sectors during the third quarter, thanks to an increase in the
number of active construction sites involving primarily smaller projects as well
as the robust performance of domestic exports so far this year. Consistent with
these developments, a marked reduction in unemployment was observed among
male workers, largely offsetting the increase seen among female workers.
Analysed by occupation category, craft and related workers, and plant and
machine operators and assemblers were the ones facing more appreciable falls
in unemployment rate. Yet for all the lower-skilled workers taken together, the
unemployment rate was still relatively high at 5.3%. As for the higher-skilled
workers, the unemployment rate showed little change at just above 2%.




                                       60
 Diagram 5.3 : Unemployment rates* fell more visibly in the manufacturing
        and construction sectors than in the service sectors during
                        the third quarter of 2006
                                                  #
        (a) Manufacturing and construction                                        (b) Services
       Percent                                                Percent
 24                                                     12
                                                                 Wholesale, retail and import/export trades,
          Manufacturing                                             restaurants and hotels
 22       Construction                                  11
                                                                 Transport, storage and communications
 20                                                     10       Financing, insurance, real estate and business services
                                                                 Community, social and personal services
 18                                                      9
 16                                                      8
 14                                                      7
 12                                                      6
 10                                                      5
  8                                                      4
  6                                                      3
  4                                                      2
  2                                                      1
  0                                                      0
      Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                    Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
       2001 2002 2003 2004 2005 2006                          2001 2002 2003 2004 2005 2006

       Notes : (*) Not seasonally adjusted, and not including first-time job seekers and re-entrants into the
                   labour force.
                 (#) Including both site and non-site workers.



5.5       The long-term unemployment situation continued to improve, albeit
only modestly. This was manifested by a further drop in the number of people
unemployed for six months or longer to 46 100. Meanwhile, the median
duration of unemployment remained relatively short, at 74.9 days. The
improvement was more distinct as compared with a year earlier, when the
corresponding figures were 59 500 and 76.0 days. Over this period, persons
engaged in the manufacturing and construction sectors, and those at the middle
age with lower secondary education or below were the ones having greater
declines in long-term unemployment. Since manufacturing and construction
used to account for a significant share of the ‘hard-core’ unemployed, a revival
in business activity and labour demand therein should be of great help in
reducing the severity of the long-term unemployment problem. Concurrently,
persons aged 25-39 with relatively higher education also faced a notable
shortening in their median duration of unemployment. A considerable
proportion of them were believed to have been re-absorbed into employment at
the managerial and supervisory levels along with the recent economic rebound.




                                                         61
             Diagram 5.4 : Long-term unemployment decreasing further

                        (a) Level                     (b) Year-on-year rate of change
        Number ('000)                               Percent
 100                                         160



  80                                         120



  60                                          80



  40                                          40



  20                                           0



   0                                         -40
       Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3         Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
        2001 2002 2003 2004 2005 2006               2001 2002 2003 2004 2005 2006




Profile of underemployment

5.6       The underemployment situation also turned better. In the third
quarter of 2006, the total numbers underemployed fell to 86 200, as did the
underemployment rate to 2.3%. This decline occurred principally among
workers at the lower segment, including craft and related workers in the
construction sector (especially decoration and maintenance); plant and machine
operators and assemblers, and workers in elementary occupations in the
manufacturing sector; and service workers in restaurants. Most of the people
in these groups had lower educational attainment of secondary education or
below, and belonged to the older age group of 50 or above.


Profile of employment in establishments

5.7      The statistics on employment, vacancies and labour income in the
corporate sector are available only up to mid-2006. Comparing June 2006
with a year earlier, the number of persons engaged in private sector
establishments rose by 1.8%. The service sectors, including in particular
restaurants and hotels; financing, insurance, real estate and business services;
and community, social and personal services, remained the primary source of
employment growth. This was underpinned by the vibrant inbound tourism
                                             62
and the recent expansion in domestic demand amid the generally sanguine local
consumer sentiment. Some of these services were also the ones where Hong
Kong had distinct competitive edge. In stark contrast, the number of workers
employed at the building and construction sites(5) shrank by 12.9%, mainly
attributable to the continued low level of construction activity in the public
sector. Manufacturing employment held broadly stable, with a slight decrease
of 0.5%. Also noteworthy was that larger enterprises were a more important
provider of new jobs than small and medium-sized ones(6), with the former
contributing around three-fifths of the total employment gain over the past year.

5.8       In June 2006, employment in the civil service was 1.5% fewer than a
year earlier. On current indications, the size of civil service establishment(7) is
expected to be reduced to around 161 900 by end-March 2007, as earlier
planned.




                                         63
                            Table 5.2 : Employment by major economic sector

                                                                 2005                                          2006

                                       Annual
                                       average          Mar           Jun          Sep         Dec          Mar             Jun

Wholesale, import and export           581 800       583 100     579 100      585 300      579 500      581 200        581 700
 trades                                   (2.5)         (4.8)       (2.8)        (1.4)        (0.9)       (-0.3)          (0.4)

Retail trade                           221 100       216 000     224 600      221 700      221 900      225 900        229 300
                                          (1.8)         (0.7)       (3.7)        (1.0)        (1.6)        (4.6)          (2.1)

Restaurants and hotels                 215 400       210 700     214 500      214 300      222 300      221 800        225 800
                                          (3.6)         (2.9)       (2.3)        (3.7)        (5.4)        (5.3)          (5.3)


Transport and storage                  153 300       151 400     153 700      153 400      154 600      154 100        155 200
                                          (3.6)         (4.3)       (4.1)        (3.6)        (2.6)        (1.8)          (1.0)
Communications                          30 000        29 800       31 200       29 700       29 200       30 000         29 300
                                         (-2.4)        (-3.6)        (0.1)       (-1.2)       (-4.9)        (0.6)         (-5.9)

Financing, insurance, real estate      456 100       447 600     457 200      455 400      464 400      468 300        475 900
  and business services                   (4.4)         (4.4)       (5.3)        (4.0)        (3.8)        (4.6)          (4.1)

Community, social and personal         439 000       434 400     437 000      437 700      446 800      451 300        451 700
 services                                 (4.5)         (5.4)       (4.5)        (5.3)        (2.7)        (3.9)          (3.4)

Manufacturing                          164 700       163 100     161 900      166 300      167 400      161 500        161 100
                                         (-2.0)        (-3.5)      (-4.5)       (-1.0)        (1.3)       (-1.0)         (-0.5)

Building and construction sites         59 300        65 800       60 000       56 800       54 500       54 900         52 300
                                        (-10.6)        (-4.8)      (-14.2)      (-12.4)      (-11.1)      (-16.5)        (-12.9)

All establishments surveyed in       2 328 700    2 310 000     2 327 300    2 328 900    2 348 700    2 357 200      2 370 400
 the private sector(a)                    (2.5)        (3.2)         (2.6)        (2.3)        (2.0)        (2.0)          (1.8)
                                                     <0.6>         <0.4>        <0.2>        <0.8>        <0.6>          <0.2>

Civil service(b)                       156 500       157 300     156 800      156 200      155 500      155 000        154 500
                                         (-2.7)        (-3.5)      (-3.0)       (-2.4)       (-1.8)       (-1.5)         (-1.5)

Notes :     Employment figures enumerated from business establishments, as obtained from the Quarterly Survey of
            Employment and Vacancies, are somewhat different from those enumerated from households, as obtained from
            the General Household Survey. This is mainly due to difference in sectoral coverage: while the former survey
            covers selected major sectors, the latter survey covers all sectors in the economy.
            (a)      The total figures on private sector employment cover also employment in mining and quarrying and in
                     electricity and gas supply, besides employment in the major sectors indicated above.
            (b)      These figures cover only those employed on civil service terms of appointment. Judges, judicial
                     officers, ICAC officers, locally engaged staff working in overseas Hong Kong Economic and Trade
                     Offices, and other Government employees such as non-civil service contract staff are not included.
            ( )      % change over a year earlier.
            <      > Seasonally adjusted quarter-to-quarter % change.
Source : Quarterly Survey of Employment and Vacancies, Census and Statistics Department.




                                                                   64
Box 5.1
                              Recent trends of part-time employees

Salient developments during 1995-2005

The number of part-time employees(1), covering mainly persons working less than 35 hours a
week, followed a general uptrend for most of the past decade. Comparing 2005 with 1995,
this particular group of workers grew by an average of 4.6% per annum, distinctly faster than
the 1.1% increase recorded for all the employees. Growth was seen entirely between 1997
and 2004, when the number almost doubled from 99 800 to 198 600, as did their share in total
employees from 3.7% to 7.3%. In 2005, the corresponding figures were 193 500 and 7.0%.


                             Number and share of part-time employees

            Number ('000)                                                                   Percent
      250                                                                                             8
               Voluntary (left scale)
               Involuntary/underemployed (left scale)
               Share in all employees (right scale)
      200
                                                                                                      6


      150

                                                                                                      4

      100


                                                                                                      2
      50



       0                                                                                              0
             1995     1996     1997     1998     1999   2000   2001   2002   2003    2004    2005

A closer examination of the data showed fairly large fluctuations in part-time employees
between individual years. To a larger extent, this was affected by the volatile movements in
those persons working part-time on an involuntary basis (i.e. the underemployed). For
instance, the number of involuntary part-time workers exhibited a sharp upsurge in 1998 and
1999, when the local economy was still badly hit by the Asian financial crisis. A similar
jump was seen in 2002 and 2003, when another economic downturn set in. Yet thanks to the
rebound in business activity since the latter part of 2003, the underemployment situation
progressively changed for the better, contributing to a visible reduction in such employees.
In 2005, these involuntary or underemployed workers were estimated at 84 800,
corresponding to 3.1% of the total employees.
An analysis of major socio-economic attributes showed that among the involuntary part-time
employees, the majority comprised middle-aged male workers, persons with lower secondary
education or below, those employed in the construction sector, and those engaged as workers
in elementary occupations.
                                          _______________________
(1)
      Part-time employees are defined here to include persons working less than 35 hours during the seven days
      before enumeration due to reasons other than vacation. Foreign domestic helpers are excluded in this
      analysis.

                                                          65
Box 5.1 (cont’d)
As to employees working voluntarily on a part-time basis, the pattern of movement was
rather different. The number was generally steady in the late 1990s, but has since followed
a notable rising trend. In 2005, these workers were estimated at 108 700 or 3.9% of the total
employees.

Over the years, whereas voluntary part-time employment was also found mainly among the
less-educated persons and workers at the lower segment, there were more female workers
than male workers especially within the middle-aged group of 30 – 59. A significant
proportion of them were believed to be housewives, who worked on a part-time basis to
supplement family income. The community, social and personal services sector had the
highest proportion of voluntary part-time workers.

Young persons aged 15 - 19 (comprising mostly students) were the other major group gaining
in importance recently. Conceivably, many of these people worked part-time with a view to
acquiring more working experience, skills and exposure, as an interim arrangement prior to
their further studies or longer-term employment. This partly explained the much higher
staff turnover rate observed for this particular age group.

Notable trends in more recent years
As mentioned earlier, the number of involuntary part-time employees fluctuated rather
widely from year to year, which was affected heavily by the economic growth performance.
Between 2000 and 2005, the number of these involuntary or underemployed workers fell by
an average of 1.2% per annum.
In stark contrast, the number of voluntary part-time employees registered a rapid increase
averaging at 9.5% per annum over the same period. This was mainly attributable to a surge
in employment of women aged 20 - 59. To some extent, it was related to the substantial
inflow of female immigrants under the One-way Permit (OWP) Scheme. Over 2000-2005,
nearly half of OWP holders were women aged 25 – 44, who tended to have greater
propensity to participate in the workforce and seek work opportunities of part-time nature.
Furthermore, while voluntary part-time employment was still prevalent among workers with
lower educational attainment and lesser skills, there was an increasing tendency among
workers at the upper segment to take up part-time jobs more recently. The majority of these
part-time employees were with upper secondary education or above and engaged in
occupations such as managers and administrators, professionals and associate professionals.

Concluding remarks

In sum, part-time employment has been generally on the increase over the past decade. This
trend is not unique to Hong Kong, and is commonly observed in many major overseas
economies. In face of intensifying competition in the global market and growing economic
uncertainty, it is only natural for business enterprises, both local and overseas, to strive for
more operational flexibility in a cost-effective manner. Increased recruitment of part-time
workers is one of the major means to attain greater flexibility in production and work
arrangements.




                                               66
Vacancies

5.9        In June 2006, job vacancies in private sector establishments continued
to surge by 9.3% over a year earlier to 41 500. This was in fact the highest
level recorded for the month of June since 1997. Of the total vacancies, the
overwhelming majority (95%) came from the service sectors. Restaurants and
hotels, transport and storage, the retail trade, and community, social and
personal services were the ones with larger gains in vacancies. Job openings at
the upper segment grew faster than those at the lower segment, by 9.8% as
against 8.9%, reversing the trend seen in the preceding three quarters. As a
result, the former’s share in total vacancies edged up to 46%, whereas the
latter’s share was reduced modestly to 54%. Also noteworthy was that most of
the additional vacancies were offered by the large enterprises, reflecting their
comparatively greater capacity to create jobs in response to growing business
demands. As regards the civil service, the number of vacancies also leaped, as
an increasing number of posts had been granted exemption from the general
recruitment freeze on the operational grounds. Yet the numbers involved were
rather small, at 2 500.

5.10       More recent data on job vacancies in some selected sectors can be
available from the Employment Services of the Labour Department. The
statistics showed that the number of private sector job vacancies was 3.0% more
in the third quarter of 2006 than a year earlier. For the first nine months of the
year as a whole, the increase was 16.5%. On average, almost 1 900 vacancies
were received per working day.




                                        67
            Diagram 5.5 : Vacancies in the corporate sector maintained
                           a strong growth momentum
        (a) Workers at the upper segment                          (b) Workers at the lower segment
     Number ('000)                                             Number ('000)
18                                                        12
        Managers and administrators                               Clerks
        Professionals                                     11      Service workers and shop sales workers
16
        Associate professionals                                   Craft and related workers
                                                          10      Plant and machine operators and assemblers
14                                                                Workers in elementary occupations
                                                           9
12                                                         8
                                                           7
10
                                                           6
 8
                                                           5
 6                                                         4
                                                           3
 4
                                                           2
 2
                                                           1
 0                                                         0
     M S     M S        M S           M S    M S M             M S     M S        M S        M S        M S M
     2001    2002       2003          2004         2006
                                             2005 2006         2001    2002       2003       2004             2006
                                                                                                        2005 2006




                                                          68
                               Table 5.3 : Vacancies by major economic sector
                                                                            No. of vacancies
                                                            2005                                            2006
                                    Annual                                                                         Vacancy rate
                                    average        Mar        Jun             Sep       Dec      Mar        Jun    in Jun 2006
                                                                                                                       (%)
Wholesale, import and export           9 100     10 300     9 300          9 100      7 800    10 600     8 300        1.4
 trades                                (20.1)     (42.4)     (7.2)         (13.4)     (21.0)     (3.0)   (-10.8)

Retail trade                           3 700      3 000     3 300          4 800      3 700    4 800      3 800        1.6
                                       (40.3)     (33.7)    (35.7)         (46.8)     (41.9)   (58.7)     (17.4)

Restaurants and hotels                 3 400      2 400     2 700          4 300      4 100    4 000      4 000        1.7
                                       (58.3)     (39.3)    (24.3)         (70.8)     (94.7)   (63.4)     (45.3)


Transport and storage                  1 800      1 700     1 900          2 300      1 500    2 000      2 200        1.4
                                       (30.3)     (36.6)    (19.2)         (38.1)     (27.5)   (20.1)     (17.5)

Communications                           700        400       500          1 200        900      800        800        2.7
                                       (34.8)    (-32.7)    (32.3)         (48.7)    (108.3)   (93.0)     (52.6)

Financing, insurance, real             10 800    10 500    11 200         12 000      9 700    13 600    12 300        2.5
  estate and business services          (21.0)    (21.5)    (23.8)         (28.8)      (9.7)    (29.6)     (9.6)

Community, social and                  7 100      6 800     7 200          8 000      6 600    7 900      8 100        1.8
 personal services                     (22.1)     (30.1)    (15.2)         (39.3)      (6.4)   (15.6)     (13.3)

Manufacturing                          2 000      2 000     1 900          2 000      2 200     1 900     2 000        1.2
                                       (33.3)     (33.1)    (16.2)         (28.8)     (58.6)    (-3.4)     (6.1)

Building and construction sites              #         #         #              #          #        #          #       *
                                       (-75.7)   (-92.7)   (-84.7)        (-77.3)    (-36.4)   (66.7)        (*)

All establishments surveyed in         38 800    37 100    38 000          43 600    36 500    45 500    41 500        1.7
  the private sector(a)                 (26.4)    (30.4)    (17.9)          (32.7)    (24.9)    (22.8)     (9.3)
                                                 <5.3>     <3.9>          <14.9>     <-0.7>    <3.4>     <-6.9>

Civil service(b)                         900       1 500     1 100           700        500    2 600       2 500       1.6
                                       (57.0)    (231.5)   (270.4)        (672.5)    (-66.9)   (76.3)    (131.6)

 Notes :       Vacancy rate refers to the ratio of vacancies to total employment opportunities (actual employment plus
               vacancies).
               (a)     The total figures on private sector vacancies cover also vacancies in mining and quarrying and in
                       electricity and gas supply, besides vacancies in the major sectors indicated above.
               (b)     These figures cover only vacancies for those staff to be employed on civil service terms of
                       appointment. They have been adjusted by deducting the vacant posts emerging from the Voluntary
                       Retirement Schemes. A general recruitment freeze to the civil service has been imposed with effect
                       from 1 April 2003. The civil service vacancies during the general recruitment freeze period refer
                       only to the number of vacant posts for which exemptions from recruitment freeze have been granted.
               ( )     % change over a year earlier.
               <     > Seasonally adjusted quarter-to-quarter % change.
               (#)     Less than 50.
               (*)     Less than 0.05%.
 Source :      Quarterly Survey of Employment and Vacancies, Census and Statistics Department.




                                                                     69
Earnings and wages

5.11      Labour earnings(8), measured by payroll per person engaged in the
private sector, were higher by 2.2% in money terms in the second quarter of
2006 than a year earlier. The mild uptrend established since early 2005 was
thus sustained. After discounting price change, a slight increase of 0.1% was
registered in real terms(9).

5.12      Most major economic sectors reported increases in labour earnings.
Specifically, workers in financial institutions had a visible gain of 8.1% in
nominal payroll, outpacing the overall average increase for the fourth
consecutive quarter. To a large extent, this reflected the continued tight
manpower resource balance prevalent in the sector. On the other hand, more
moderate increases of 2.0% and 0.7% respectively were recorded for workers
engaged in sanitary services and in restaurants and hotels, where a relatively
abundant supply of labour was found. As for the manufacturing sector,
nominal earnings moved up by 1.1%, aided by the recent pick-up in domestic
exports. Meanwhile, nominal payroll in community, social and personal
services was slightly down by 0.1%.

5.13      The Salary Indices for Managerial and Professional Employees
indicated a generally larger pay rise among workers at the upper segment in the
recent period. Comparing June 2006 with a year earlier, the index was up by
3.7% in nominal terms or 1.2% in real terms(10) in respect of the existing staff.
When the newly recruited and promoted employees were also taken into
account, the index increased by 2.4% in money terms, though virtually
unchanged in real terms.

5.14      In the third quarter of 2006, the labour income situation continued to
improve in overall term, according to the earnings figures compiled from
General Household Survey.           Anecdotal data available suggested that
high-skilled workers such as accountants, financial advisers and fund managers
had relatively greater upward adjustments in employment earnings.




                                        70
              Diagram 5.6 : Nominal earnings registered modest increases

             (a) Year-on-year rate of change                 (b) Year-on-year rate of change
                     in money terms                                   in real terms
        Percent                                         Percent
   7                                               7
   6                                               6
                                Service sectors                                 Service sectors
   5                              as a whole       5
                                                                                  as a whole
   4                                               4
   3                                               3
   2                                               2
   1                                               1
   0                                               0
   -1                                              -1
   -2                                              -2    Manufacturing
   -3                                              -3       sector
   -4     Manufacturing                            -4
   -5        sector                                -5
   -6                                    -6
     Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1      Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
      2001  2002  2003  2004  2005 2006
                                    2006    2001  2002  2003  2004  2005 2006
                                                                          2006




5.15      By comparison, labour wages, which cover regular payments of
workers at the supervisory level or below, had a smaller rise of 1.1% in money
terms in June 2006 over a year earlier, owing to the looser manpower resource
balance still existing for lower-end occupations. In real terms, labour wages
showed a marginal decrease of 0.7%.

5.16       Similar to the situation as reflected by labour earnings, increases in
nominal wages were also observed extensively across nearly all the major
economic sectors. Financing, insurance, real estate and business services were
the one with the largest wage gain of 2.0%, reflecting strong demand for
workers not only at the managerial and professional levels but also at the
supporting level in these arenas. By contrast, transport services reported a
modest decrease in wages by 1.7%. When expressed in real terms, wages fell
slightly on a broad front, except for those in financing, insurance, real estate and
business services where a marginal rise was still recorded. Analysed by main
occupation, nominal wages likewise edged up almost across-the-board, save for
miscellaneous non-production workers. Among all the workers concerned,
clerical and secretarial workers, and operatives had relatively larger increases in
wages, both by around 2% in money terms. They were also the only groups
experiencing wage hikes in real terms.



                                                  71
Notes :

(1)   For a person aged 15 or above to be classified as unemployed, he or she should: (a) not
      have a job and not be performing any work for pay or profit during the reference period
      (i.e. seven days before enumeration); and (b) be available for work during the reference
      period; and (c) be seeking work during the 30 days before enumeration.

      Notwithstanding the above, the following types of persons are also considered
      unemployed: (a) persons without a job, having sought work but not available for work
      because of temporary sickness; (b) persons without a job, available for work but not
      having sought work because they will take up new jobs or start business at a subsequent
      date, or expect to return to their original jobs; and (c) discouraged workers not having
      sought work because they believe work is not available to them.

      Even at full employment, some frictional unemployment is bound to exist as workers
      move between jobs in order to obtain better terms of employment. The precise level
      of unemployment which can be described as purely frictional varies amongst
      economies, depending on the structure and characteristics of their labour markets.

      In April 2001, the Census and Statistics Department put out a revised series of
      seasonally adjusted unemployment rate compiled by reference to the X-11 ARIMA
      method, which adjusts for all seasonal variations in employment and unemployment
      (i.e. the changes due to holiday effects, seasonally ups and downs in economic activity,
      seasonal variations in first-time job-seekers, etc). This replaces the former series
      which adjusts only for seasonal variations in the proportion of first-time job-seekers in
      the labour force. For more details, see Note (3) at the end of Chapter 5 of the
      Half-yearly Economic Report 2001.


(2)   The main criteria for an employed person aged 15 or above to be classified as
      underemployed are: involuntarily working less than 35 hours during the reference
      period (i.e. seven days before enumeration), and either available for additional work
      during the reference period or seeking additional work during the 30 days before
      enumeration.

      Following these criteria, employed persons taking no-pay leave due to slack work
      during the reference period are also classified as underemployed if they had worked
      less than 35 hours or were on leave for the entire reference period.


(3)   Figures enumerated from household data. The employed population is defined here to
      include those persons aged 15 or above who performed work for pay or profit or had a
      formal job attachment during the reference period (i.e. seven days before enumeration).


(4)   The labour force, or the economically active population, is defined to include all
      persons aged 15 or above who either were engaged in productive work during the
      reference period (i.e. seven days before enumeration) or would otherwise have been
      engaged in productive work but were unemployed.


(5)   Taking into account off-site workers and related professional and support staff,
      employment in the entire building and construction sector actually increased notably by
      6.6% in the third quarter of 2006 over a year earlier.



                                               72
      Employment for the construction sector as a whole is enumerated from the General
      Household Survey carried out by the Census and Statistics Department. Apart from
      site workers, it also includes non-site workers engaged in minor alteration and addition,
      repair, maintenance and interior decoration work on existing buildings. In addition, it
      includes professional, administrative and other support personnel engaged in that sector,
      such as engineers, architects, surveyors and contract managers, as well as general
      clerical staff.


(6)   Manufacturing enterprises with fewer than 100 employees and non-manufacturing
      enterprises with fewer than 50 employees are regarded as small and medium-sized
      enterprises (SMEs) in Hong Kong. Yet establishments with the same main business
      registration number (BRN) and engaged in activities of the same industry sector are
      grouped into one business unit for the purpose of calculating the number of SMEs.
      Thus, a business with a lot of small chain stores each employing a small number of
      employees will be considered as a single large enterprise, instead of separate SMEs.


(7)   Civil service establishment refers to the total number of posts, whether filled or unfilled,
      under the prevailing organisational structure of the civil service. It is different from
      the strength or actual employment figures as shown in Table 5.2.


(8)   In addition to wages, which include all regular payments like basic pay and stipulated
      bonuses and allowances, earnings also cover overtime pay and other non-guaranteed or
      irregular bonuses and allowances, except severance pay and long service payment.
      Because of this difference, as well as the difference in sectoral and occupational
      coverage, the movements in average earnings, as measured by payroll per person
      engaged, do not necessarily match closely with those in wage rates.


(9)   Different consumer price indices are used for compiling the real indices of labour
      earnings and wages, taking into account their relevance to the respective occupation
      coverage. Specifically, the Composite CPI, being an indicator of overall consumer
      prices, is taken as the price deflator for earnings received by employees at all levels of
      the occupational hierarchy. The CPI(A), being an indicator of consumer prices for the
      middle to lower income groups, is taken as the price deflator for wages in respect of
      workers on occupations up to the supervisory level, and also in respect of manual
      workers engaged in the construction sector.


(10) The Consumer Price Index (C) is used for compiling the Salary Indices for Managerial
     and Professional Employees in real terms.




                                                73
                            CHAPTER 6 : PRICES

Summary

•   Along with sustained economic expansion, consumer price inflation notched
    up slightly further, yet to a still moderate 2.3% in the third quarter of 2006.

•   The upward pressures on local business cost remained largely in check. Unit
    labour cost continued to be kept down by rising productivity, while the
    increase in unit rental cost also began to stabilise along with some softening
    in shop rentals lately.

•   External cost pressures were likewise moderate, as can be seen from the
    modest increase in import prices. Another notable development was the
    substantial fall-off in oil prices lately, which should contribute towards some
    easing in fuel-related prices in the months ahead.


Consumer prices

6.1           Consumer price inflation(1) continued to edge higher, averaging at
2.3% in the third quarter, from 1.6% in the first quarter and 2.0% in the second
quarter. Yet on the whole, consumer price inflation was still largely in check,
especially when viewed against the rapid economic expansion over the past
twelve quarters or so.          The momentum in unit rental cost for the
consumption-related sectors as a whole seemed to be stabilising, on the
backdrop of robust consumer spending and some softening in shop rentals lately.
Unit labour cost(2), adjusted for labour productivity, declined slightly further, as
the cost pressure on the wage front continued to be mitigated by modest wage
rise while labour productivity growth remained hefty. Also, the feed-through
from the continuous increase in residential rentals(3) appeared to have largely
completed. Externally, the weakening of the Hong Kong dollar had so far
exerted only modest upward pressure on import prices. Also, the fall-off in oil
prices lately should help to reduce the cost pressure on prices of fuel-related
items in the period ahead. Overall, while both domestic and external cost
pressures remained rather moderate, the pricing power of the retailers and
service providers has generally improved, as can be seen from the faster
increase in the prices of certain consumer goods and services.



                                        74
                      Diagram 6.1 : Consumer price inflation,
           though edging up to 2.3% this quarter, was still largely in check
            (a) Year-on-year rate of change              (b) Seasonally adjusted quarter-to-quarter
                                                                       rate of change
         Percent                                              Percent
  5.0                                                  2.5
            Consumer Price Index (A)                             Consumer Price Index (A)
  4.0       Consumer Price Index (B)                   2.0       Consumer Price Index (B)
            Consumer Price Index (C)                             Consumer Price Index (C)
  3.0       Composite Consumer Price Index
                                                       1.5       Composite Consumer Price Index
  2.0                                                  1.0

  1.0                                                  0.5

  0.0                                                  0.0

 -1.0                                               -0.5

 -2.0                                               -1.0

 -3.0                                               -1.5

 -4.0                                               -2.0

 -5.0                                               -2.5

 -6.0                                               -3.0
        Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                  Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
         2001  2002  2003  2004  2005  2006                   2001  2002  2003  2004  2005  2006


        Note :     From the fourth quarter of 2005 onwards, the year-on-year rates of change in the
                   Consumer Price Indices are computed from the new 2004/05-based CPI series. Before
                   then, the year-on-year rates of change are computed from the old 1999/2000-based
                   CPI series. Splicing has been applied to the indices to maintain continuity.


6.2        The main components driving the CPI inflation upward in the third
quarter were food and miscellaneous services. The increase in food prices was
partly due to weather-induced spikes in the prices of vegetable. Meanwhile,
the relatively faster rise in the charges for utility in the quarter mostly reflected
the pass-through of earlier surges in fuel prices. But in general the pricing
power of retailers and service suppliers was apparently improving, on the
backdrop of upbeat consumer sentiment and vibrant retail business.




                                                  75
                          Diagram 6.2 : Spikes in certain food prices, as well as
                         improving sellers' pricing power, were behind the rise
                               in consumer price inflation in the quarter
              Year-on-year rate of change (%)
         8
                     Second quarter 2006
         6           Third quarter 2006

         4

         2

         0

        -2

        -4

        -6

        -8
                  Food    Meals      Other Housing Private Public Electricity, Alcoholic Clothing Durable    Misc. Transport Misc.
                           out      foodstuffs    dwellings dwellings gas and     drinks    and    goods     goods           services
                                                                       water       and    footwear
                                  Food                  Housing                  tobacco

Note :              Comparison between the two quarters is made on the new 2004/05-based Composite
                    CPI series.



                                        Table 6.1 : Consumer Price Indices
                                              (year-on-year rate of change (%))
                                   Composite CPI                        CPI(A)                         CPI(B)                           CPI(C)

2005         Annual                        1.0                              1.1                             1.0                          0.8

             H1                            0.6                             0.8                              0.6                          0.3
             H2                            1.4                             1.3                              1.4                          1.4

             Q1                            0.4                             0.7                              0.4                         -0.1
             Q2                            0.8                             1.0                              0.8                          0.7
             Q3                            1.4                             1.4                              1.5                          1.5
             Q4                            1.3                             1.2                              1.4                          1.2

2006         H1                            1.8                             1.6                              1.9                          2.0

             Q1                            1.6                             1.3                              1.7                          1.7
             Q2                            2.0                             1.8                              2.1                          2.3
             Q3                            2.3                             2.1                              2.4                          2.4

Note:               The year-on-year changes of the CPIs from the fourth quarter of 2005 onwards are
                    from the 2004/05-based CPI series, while the ones before that are from the
                    1999/2000-based series. Splicing has been applied to the two sets of CPI series in
                    order to obtain better estimates of the annual rate of change for 2005 and for the second
                    half of 2005.



                                                                       76
             Table 6.2 : Composite Consumer Price Index by component
                                 (year-on-year rate of change (%))

                                                2005                     2006
Expenditure component          Weighting        Q4           Q1           Q2           Q3

Food                            26.94            1.4         0.9          1.7           2.1

  Meals bought away from        16.86            1.1         1.0          1.3           1.5
  home
  Other foodstuffs               10.08           1.9         1.0          2.3           3.1

Housing(a)                      29.17            2.8         4.2          4.9           4.8

  Private dwellings              23.93           3.3         5.0          5.9           5.7
  Public dwellings                2.49           0.1         0.1          0.1           0.1

Electricity, gas and water        3.59           4.0         3.9          3.4           4.1

Alcoholic drinks and              0.87           0.4        -0.6         -5.9          -4.1
  tobacco

Clothing and footwear             3.91           0.1        -2.0         -0.7           1.7

Durable goods                     5.50          -6.7        -5.8         -6.6          -6.9

Miscellaneous goods               4.78          -0.1         0.4          1.8           1.9

Transport                         9.09           1.5         1.6          1.1           0.2

Miscellaneous services           16.15           1.1         1.2          1.9           2.5


All items                      100.00            1.3         1.6          2.0           2.3



Note:   (a)     The housing component covers rents, rates, Government rent, maintenance costs and
                other housing charges. Its sub-components on private and public dwellings as
                presented here, however, cover rents, rates and Government rent only. Hence, the
                combined weighting of private and public dwellings is slightly less than the
                weighting of the entire housing component.




                                               77
Costs of factor inputs

6.3       The upward pressures on domestic business cost remained mild. The
increase in the unit rental cost should have stablilised in the third quarter, thanks
to the continued brisk increase in business volume and softening in shop rentals
lately. Meanwhile, labour cost was also modest. Wages were only rising
slowly, and when viewed in conjunction with the hefty increase in labour
productivity, unit labour cost remained on a slight decline.

6.4       Price pressure from the external front was likewise moderate. The
weakening of the Hong Kong dollar, along with the US dollar under the linked
exchange rate system, so far had not pushed up import prices by any significant
extent. While import prices of raw materials and capital goods picked up
mildly, those of consumer goods remained soft. The momentum of the surge
in import of fuels in the recent years has also started to wane, as oil prices eased
back after mid-August, more notably so in September. Specifically, the
increase in fuel-related items in the CPI, viz. towngas, LPG and motor gasoline,
together contributed only 0.08 of a percentage point to the 2.1% CPI inflation in
September, down from that of 0.19 in July and 0.18 in August.

                               Diagram 6.3 : Costs of factor inputs
      (a) Domestic factor costs stayed mild,                            (b) Costs on imported commodities
   thanks to relatively slower factor price rises                               picked up modestly

        Year-on-year rate of change (%)                                Year-on-year rate of change (%)
  20                                                             20
            Unit labour cost                                               Import prices of raw materials
            Unit rental cost                                                and semi-manufactures
  15                                                             15
                                                                           Import prices of capital goods
                                                                           Import prices of foodstuffs
  10                                                             10

   5                                                              5

   0                                                              0

  -5                                                             -5

 -10                                                         -10

 -15                                                         -15
       96   97   98   99   00 01   02   03   04   05   06             Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
                                                                       2001 2002 2003 2004 2005 2006




                                                            78
                      Table 6.3 : Prices of imports by end-use category
                                       (year-on-year rate of change (%))

                                       Consumer          Raw                            Capital
                       Foodstuffs       goods           materials         Fuels         goods     All

2005       Annual          0.9               2.8           3.1            32.9            -0.5    2.7

           H1              2.1               3.4           4.6            33.3             0.1    3.6
           H2             -0.4               2.3           1.8            32.4            -0.9    1.9

           Q1              2.8               3.2           5.7            27.1             0.6    4.0
           Q2              1.5               3.6           3.7            39.9            -0.4    3.3
           Q3             -0.3               2.9           2.1            38.3            -1.1    2.3
           Q4             -0.4               1.8           1.5            26.7            -0.7    1.6

2006       H1              0.2               0.3           1.8            27.5             *      1.5

           Q1             -0.3               0.5           1.2            32.4            -1.5    1.0
           Q2              0.6               0.1           2.3            23.7             1.3    1.9
           Q3              1.5               0.4           4.3            13.6             2.0    2.7

 Note : (*) Change of less than 0.5%


                   Diagram 6.4 : The recent Hong Kong dollars depreciation
                so far had not pushed up import prices by any significant extent
           Year-on-year rate of change (%)
       6
                Import-weighted nominal effective exchange rate index of the Hong Kong dollar
                Import prices
                Import prices
       4


       2


       0


    -2


    -4


    -6
           Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
               2001        2002        2003        2004        2005      2006


            Note : The nominal EERI in this graph is inverted in scale for easier comprehension. An
                   increase in the nominal EERI indicates weakening of the Hong Kong dollar.




                                                         79
          Diagram 6.5 : Momentum of the surge in import fuel price starting to
             wane in line with global oil price movements; import prices of
               other commodities modestly up upon US dollar weakening
          (a) Prices of imports of foodstuffs and        (b) Prices of imports of consumer goods and
                  Mainland's food prices                            selected exchange rates
      Year-on-year                                            Year-on-year                      Year-on-year
      rate of change (%)                                      rate of change (%)           rate of change (%)
20                                                       40                                                     8
            Prices of imports of foodstuffs                      Prices of imports of
                                                         35      consumer goods (right scale)                   7
            Mainland's retail price index
15          for food items                               30      HK$/Yen (left scale)                           6
                                                         25      HK$/Euro (left scale)                          5
10                                                       20                                                     4
                                                         15                                                     3
 5                                                       10                                                     2
                                                          5                                                     1
 0                                                        0                                                     0
                                                         -5                                                     -1
-5                                                   -10                                                        -2
                                                     -15                                                        -3
-10                                                  -20                                   -4
   Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                  Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
    2001  2002  2003  2004  2005  2006                   2001 2002 2003 2004 2005 2006




           (c) Prices of imports of raw materials                 (d) Prices of imports of fuel and
                  and semi-manufactures                            international crude oil prices
            and international commodity prices

           Year-on-year rate of change (%)                     Year-on-year rate of change (%)
 25                                                  100
              CRB spot index                                       North Sea Brent
              Prices of imports of                                 Prices of imports of fuels
 20           raw materials and                          80
               semi-manufactures

 15                                                      60


 10                                                      40


     5                                                   20


     0                                                    0


     -5                                              -20


 -10                                                 -40
          Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
           2001 2002 2003 2004 2005 2006                       2001 2002 2003 2004 2005 2006




                                                    80
Output prices(4)

6.5        Echoing the strong growth in domestic exports of goods in the first
two quarters of the year, there was a further slight pick-up in local
manufacturing prices in the second quarter of 2006. Prices for hotels and
boarding houses continued to surge, as hoteliers had strong pricing power given
the tight supply-demand condition. On the other hand, the output price decline
in maritime and air transport in the second quarter conceivably echoed the need
to maintain price attractiveness in a highly competitive environment. While the
rise in the prices for miscellaneous communication services held steady in the
second quarter, the continued fall in the prices for telecommunications was the
result of competitive pressure and technological advancement.

       Table 6.4 : Producer Price Indices for the local manufacturing
                      sector and selected service sectors
                              (year-on-year rate of change (%))


                                                          2005                                 2006
Industry group                        Annual      Q1        Q2        Q3       Q4        Q1           Q2

Manufacturing                           0.8         0.5       0.7      0.8       1.1     2.0          2.4
Selected services sector(#)
  Hotels and boarding                  12.3       14.0      11.8      11.2      12.1    10.1          9.2
   houses
  Land transport                        1.0         0.9       0.4      1.3       1.5     1.0          0.6
  Maritime transport                    0.4         1.6       0.2      0.9      -1.0     -3.6         -3.7
  Air transport                         2.5         1.6       2.9      3.1       2.5     0.2          -0.5
  Telecommunications                   -7.5        -8.2      -7.6     -8.0      -6.2     -7.5         -6.2
  Miscellaneous                            *       -0.3       0.1      0.1       0.1     1.5          1.4
   communications
   services
Notes : (#)   Producer Price Indices for the other service sectors are not available, due to the
              difficulties involved in defining and delineating the various types of services and hence
              in measuring their respective price changes. This is particularly so for such sectors as
              banking and insurance, where the producers often do not charge their customers
              explicitly.

        (*)   Change of less than 0.05%.




                                                 81
GDP deflator

6.6           The GDP deflator (5), a broad measure of overall changes in prices
of the economy, continued to show a marginal decline in the third quarter.
This was entirely caused by a continued fall in the terms of trade, a dominant
item in the GDP deflator given the sheer size of trade in the Hong Kong
economy. Despite waning negative impact from the previous surges in fuel
prices, the recent depreciation of the Hong Kong dollar has started to kick in to
drag the terms of trade downward (For details, see Box 6.1). Reflecting the
strong domestic demand, the domestic demand deflator continued to register a
steady increase in the third quarter.


                                          Diagram 6.6
   (a) GDP deflator continued to fall slightly...        (b) ...as the terms of trade stayed sluggish

     Year-on-year rate of change (%)                       Year-on-year rate of change (%)
   3                                                     3
        GDP deflator                                          GDP deflator
   2    Domestic demand deflator                         2    Terms of trade in goods and services
   1                                                     1
   0                                                     0
  -1                                                     -1

  -2                                                     -2

  -3                                                     -3

  -4                                                     -4

  -5                                                     -5

  -6                                                     -6

  -7                                                     -7

  -8                                                     -8
       Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3                    Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
        2001 2002 2003 2004 2005 2006                          2001 2002 2003 2004 2005 2006




                                                    82
     Table 6.5 : GDP deflator and the main expenditure component deflators
                                     (year-on-year rate of change (%))


                                                                 2005                           2006
                                             Annual      Q1       Q2      Q3      Q4     Q1#       Q2#   Q3+
Private consumption expenditure                1.4        0.4     1.4     1.5      2.2   1.9       1.6   1.6
Government consumption expenditure             -1.6      -1.8    -1.6    -1.7     -1.4   1.2       1.3   1.5
Gross domestic fixed                           0.9        2.3     1.8     1.3     -1.7   -2.0      3.1   6.3
  capital formation
Total exports of goods                         -0.1       1.3     0.4    -0.2     -1.3   -1.8     -0.7   -0.4
Imports of goods                               1.3        2.9     1.8     0.8      *     *         1.4   1.7
Exports of services                            3.5        2.6     2.9     3.2      5.2   4.8       5.4   5.1
Imports of services                            0.9        2.0     1.7     0.9     -0.7   -0.2      0.7   1.3
Gross Domestic Product                         -0.2     -1.4   -0.6  0.2           0.7   -0.1  -0.1  -0.2
                                                        <0.1> <0.2> <*>           <0.5> <-0.9> <0.2> <0.1>
Total final demand                             0.8        1.2     0.9     0.5      0.2   *         1.0   1.1
Domestic demand                                0.8        0.3     0.9     1.1      0.9   1.1       2.0   2.1

Notes : Figures are subject to revision later on as more data become available.
        (#)   Revised figures.
        (+)   Preliminary figures.
        <>    Seasonally adjusted quarter-to-quarter % change.
        (*)   Change of less than 0.05%.




                                                  83
Box 6.1
                          Fuel prices and the terms of trade

Although the surge in international oil price over the past year had not pushed up consumer
price inflation by a significant extent (paragraph 6.4), its impact on import prices and on the
terms of trade (TOT) was considerably larger. Soaring oil prices was actually the key factor
underlying the deterioration in the terms of trade over the past few quarters.

The TOT is the ratio between the prices of total exports and imports faced by local exporters
and importers in Hong Kong, as measured by their respective unit value index (UVI). Each
of the export/import UVI is an average of export/import prices of a basket of commodities,
weighted by their respective export/import values in the same month last year.

For import prices in particular, its movements are determined by a number of factors : (1) the
exchange rates of the Hong Kong dollar against the currencies of import sources, in that
depreciation of the Hong Kong dollar will lead to a rise in import prices, and vice versa; (2)
higher inflation and higher production costs in Hong Kong’s major import sources, if passed
onto the output price level, will also lead to higher import prices for Hong Kong; (3)
movements of world commodity prices as directly reflected in their respective import prices.

Table (1) indicates that the movements of exchange rate can explain the fluctuations of
import prices quite well. The strong negative correlation suggests that a strengthening of
the Hong Kong dollar would generally lead to lower import prices, which in turn should
result in an improvement in the terms of trade, and vice versa.

Table (1):     Simple correlation shows that the import weighted effective exchange rate
               index (EERI) generally explains the fluctuation of the import prices well

                      Correlation coefficient between the Correlation coefficient between the
                       levels of EERI and import UVI        y-o-y % changes of EERI and
  Months of Lag                 of various lags              import UVI of various lags

          0                           -0.68                                -0.50
          1                           -0.70                                -0.57
          2                           -0.73                                -0.62
          3                           -0.75                                -0.65
          4                           -0.76                                -0.67

However, as seen in Table (2), the relationship is not as obvious recently as in the past,
namely, when the Hong Kong dollar strengthened between November last year and April this
year, i.e. Hong Kong’s import prices did not ease significantly enough and as a result the
terms of trade has continued to deteriorate despite the dollar strengthening.

To investigate the cause, the fuel import UVI is discerned from the import UVI. As shown
in Table (2), the import prices excluding fuel actually showed a much larger degree of
softening over that particular period. This is because the prices of fuel imports, despite having
only a small weighting of around 2-3% in the compilation of the import UVI, have pushed up
the overall import UVI by more than 1 percentage point over the past few quarters due to the
feed-through of soaring international oil prices. From Diagram 6.5d, it is also clear that the
fuel import UVI actually follows the global crude oil market very well. The correlation
coefficient between fuel import UVI and international oil price is as high as 0.94, indicating
an almost immediate 100% feed-through from the world market to the local fuel import
prices.




                                              84
Box 6.1 (cont’d)
Table (2):              The import prices did not ease significantly enough despite the
                        strengthening of the Hong Kong dollar in late 2005/early 2006
                                                           UVI of fuel            Import UVI Import-weighted
  Year               Month          Import UVI (a)         imports (a)          excluding fuel (a) EERI (a)
  2005                Jul                   2.7                   40.1                    1.4                     -0.6
                      Aug                   2.2                   36.0                    0.7                     -2.0
                      Sep                   2.0                   39.2                    0.5                     -1.6
                      Oct                   1.4                   32.8                   -0.4                     -0.1
                      Nov                   1.9                   25.1                    0.9                      1.7
                      Dec                   1.4                   25.1                    0.5                      2.3
  2006                Jan                   1.1                   37.6                    *                        1.0
                      Feb                   0.9                   36.0                   -0.8                      1.4
                      Mar                   0.9                   25.2                   -0.6                      1.6
                      Apr                   1.0                   20.9                   -0.3                      0.1
                      May                   2.1                   26.8                    0.6                     -1.3
                      Jun                   2.6                   22.9                    1.8                     -1.6
                      Jul                   2.6                   19.9                    1.0                     -2.3
                      Aug                   2.7                   16.3                    1.6                     -1.3
                      Sep                   2.7                    4.7                    2.1                     -1.6
              (a)
Notes:               All figures are year-on-year percentage changes.
              *      Change of less than 0.05%
The scenario of the import UVI being shored up by its component of fuel prices actually
traces back to the beginning of the year 2004, when oil prices began to soar. Thus, when the
import UVI with the fuel component excluded is used to compare with the export UVI, the
resultant terms of trade actually showed an improvement not shown in the original series in
the period between early last year and the middle of this year. This was mainly due to the
fuel price effect stated in the previous paragraph.

               Chart 1 : The TOT trod a very different path when the fuel component
                                   is excluded from the imports
                  Year-on-year rate of change (%)                                                       Percent
         6                                                                                                          12
                                                                         ToT in goods (left scale)
         5                                                               ToT in goods ex fuel (left scale)          10
                                                                         Trade-weighted EERI (right scale)
         4                                                                                                          8

         3                                                                                                          6

         2                                                                                                          4

         1                                                                                                          2

         0                                                                                                          0

         -1                                                                                                         -2

         -2                                                                                                         -4

         -3                                                                                                         -6
              1996      1997     1998     1999      2000   2001     2002     2003     2004      2005    2006


                                                              85
Box 6.1 (cont’d)
Table (3):        Terms of Trade (TOT) did improve in relative terms along the
                  strengthening of the Hong Kong dollar when the fuel component in
                  import UVI is excluded

                                                                   TOT of Goods,       Import-weighted
     Year               Quarter          TOT of Goods (a)         excluding fuel (a)      EERI (a)

     2004                  Q1                  -1.5                      -1.3              -3.0
                           Q2                  -1.8                      -1.4              -2.4
                           Q3                  -2.0                      -1.4              -2.0
                           Q4                  -1.6                      -0.8              -2.1
     2005                  Q1                  -1.8                      -1.1              -2.5
                           Q2                  -1.4                      -0.2              -2.0
                           Q3                  -1.3                       0.1              -1.4
                           Q4                  -1.2                       0.0               1.3
     2006                  Q1                  -1.3                       0.1               1.3
                           Q2                  -1.3                      -0.1              -0.9
                           Q3                  -1.3                      -0.2              -1.8
         (a)
Note :         All figures are year-on-year percentage changes.




                                                       86
Notes :

(1)   The Consumer Price Indices (A), (B) and (C) are compiled by reference to the average
      expenditure patterns for different groups of households as obtained from the Household
      Expenditure Survey. Then, by aggregating the expenditure patterns of all the
      households covered by the above three indices, a Composite CPI is compiled.

      The expenditure ranges of the households covered in the 2004/05-based CPIs are shown
      below:
                                                                     Average monthly
                                Approximate proportion of            expenditure range
                                  households covered            during Oct 2004 to Sep 2005
                                         (%)                                ($)
      CPI(A)                                 50                        4,000 to 15,499
      CPI(B)                                 30                       15,500 to 27,499
      CPI(C)                                 10                       27,500 to 59,999

      The weightings of the various components in the 2004/05-based CPIs are as follows:
      Expenditure
      Component                 Composite CPI         CPI(A)         CPI(B)          CPI(C)
                                    (%)                (%)            (%)             (%)
      Food                          26.94              32.10           27.32          20.41
        Meals bought                16.86              18.63           17.65          13.74
            away from home
        Other foodstuffs            10.08              13.47            9.67           6.67
      Housing                       29.17              30.54           27.70          29.66
        Private dwellings           23.93              22.07           23.89          26.11
        Public dwellings             2.49               6.18            1.25           --
        Maintenance costs            2.75               2.29            2.56           3.55
            and other
            housing charges
      Electricity, gas and            3.59               4.84           3.37           2.45
        water
      Alcoholic drinks and            0.87               1.35           0.79           0.42
        tobacco
      Clothing and                    3.91               2.81           4.28           4.67
        footwear
      Durable goods                  5.50               4.01            5.67           6.99
      Miscellaneous goods            4.78               4.68            4.76           4.91
      Transport                      9.09               8.07            9.05          10.35
      Miscellaneous                 16.15              11.60           17.06          20.14
        services
      All items                    100.00             100.00         100.00         100.00

(2)   Unit labour cost represents the labour cost per unit of output produced. It is distinct
      from the nominal wage index in that it will discount the effect of labour productivity
      growth in arriving at the labour cost measure. Technically, it refers to the product of
      the nominal index of payroll per person engaged and the total employment, divided by
      the real GDP. (For details, please refer to Box 7.1, 2005 Economic Background and
      2006 Prospect)

(3)   In any particular period, only a small proportion of the tenancies of private dwellings
      are new lettings for which rentals are freshly determined, and lease renewals upon
      which rentals are revised. The majority of the tenancies are existing leases with rentals
      fixed until their expiry. Upon aggregation, the movements in private housing cost
                                              87
      thus tend to be less responsive than the corresponding movements in market rentals, as
      reflected in the rental index for private residential flats compiled by the Rating and
      Valuation Department (RVD). According to the RVD, rentals for new lettings rose
      further by an average of 4.0% year-on-year in the third quarter of 2006, slower than an
      average of 8.2% and 6.3% increase in the first and second quarters of 2006 respectively.

(4)   The Producer Price Index is designed to reflect changes in the prices of goods and
      services received by local producers. Producer prices refer to the transacted prices, net
      of any discounts or rebates allowed to the buyers. Transportation and other incidental
      charges are not included.


(5)   The implicit price deflators of GDP and its main expenditure components are derived
      by dividing GDP at current prices by the corresponding constant price figures. The
      rate of change in the GDP deflator may differ substantially from that in the Composite
      CPI over the same time span. The Composite CPI covers consumer price inflation in
      particular. Yet the GDP deflator is a much broader measure of inflation for the entire
      economy, and takes into account all the price changes related to consumption,
      investment, exports and imports. Also, the rate of change in the GDP deflator may
      differ appreciably from that in the total final demand deflator, depending on the
      movement in the prices of final demand and imports. Likewise, the rate of change in
      the GDP deflator may differ appreciably from that in the domestic demand deflator,
      depending on the movement in the prices of imports and exports.




                                              88
                                       Statistical Appendix

                                               Table                                       Page

1.   Gross Domestic Product by expenditure component (at current market prices)            90-91

2.   Rates of change in Gross Domestic Product by expenditure component (in real terms)    92-93

3.   Gross Domestic Product by economic activity (at current prices)                        94

4.   Rates of change in Gross Domestic Product by economic activity (in real terms)         95

5.   Balance of payments account by major component (at current prices)                     96

6.   Visible and invisible trade (at current market prices)                                 97

7.   Total exports of goods by market (in value terms)                                      98

8.   Imports of goods by source (in value terms)                                            99

9.   Retained imports of goods by end-use category (in value terms)                         99

10. Exports and imports of services by component (at current market prices)                100

11. Incoming visitors by source                                                            101

12. Property market                                                                       102-103

13. Property prices and rentals                                                           104-105

14. Monetary aggregates                                                                   106-107

15. Rates of change in business receipts indices for service industries/domains            108

16. Labour force characteristics                                                           109

17. Employment in selected major economic sectors                                          110

18. Number of workers engaged at building and construction sites                           111

19. Average labour earnings by major economic sector                                       112

20. Rates of change in wage indices by selected major economic sector                      113

21. Rates of change in prices                                                             114-115

22. Rates of change in Composite Consumer Price Index                                     116-117

23   Rates of change in implicit price deflators of GDP and
     its main expenditure components                                                      118-119




                                                   89
               Table 1 : Gross Domestic Product by expenditure component
                                (at current market prices)
                                                                                                                ($Mn)
                                            1996          1997          1998          1999          2000         2001


Private consumption                      755,508       833,825       795,948       765,282      774,280       782,587
    expenditure
Government consumption                   103,541       112,751       116,550       119,993      120,172       128,866
   expenditure
Gross domestic fixed                     378,486       451,891       388,731       325,328      347,375       333,036
   capital formation
   of which:
   Building and construction             185,648       223,264       208,235       171,930      155,441       142,651
   Machinery, equipment and              170,652       190,760       165,177       141,349      180,204       180,011
      computer software
Changes in inventories                      9,762       12,313        -15,651       -10,612       14,399        -4,060
Total exports of goods                 1,397,917     1,455,949     1,347,649      1,349,000    1,572,689    1,480,987
   Domestic exports                      212,160       211,410       188,454        170,600      180,967      153,520
   Re-exports                          1,185,758     1,244,539     1,159,195      1,178,400    1,391,722    1,327,467
Imports of goods                       1,511,365     1,589,876     1,408,317      1,373,500    1,636,711    1,549,222
Exports of services                      285,385       286,595       262,099       276,385      315,012       320,799
Imports of services                      189,753       198,424       194,245       185,174      192,427       194,180

GDP                                    1,229,481     1,365,024     1,292,764      1,266,702    1,314,789    1,298,813
Per capita GDP ($)                       191,047       210,350       197,559       191,736      197,268       193,135

GNP                                    1,218,405     1,363,409     1,317,362      1,291,470    1,323,543    1,327,356
Per capita GNP ($)                       189,326       210,101       201,318       195,485      198,581       197,379

Total final demand                     2,930,599     3,153,324     2,895,326      2,825,376    3,143,927    3,042,215
Total final demand                     1,949,977     2,130,313     1,952,900      1,886,191    2,045,858    1,982,896
   excluding re-exports(a)
Domestic demand                        1,247,297     1,410,780     1,285,578      1,199,991    1,256,226    1,240,429
  Private                              1,078,661     1,233,803     1,107,816      1,014,347    1,075,654    1,053,568
  Public                                 168,636       176,977       177,762        185,644      180,572      186,861
External demand                        1,683,302     1,742,544     1,609,748      1,625,385    1,887,701    1,801,786


Definitions of Terms :
Total final demand               = private consumption expenditure + government consumption expenditure + gross
                                   domestic fixed capital formation + changes in inventories + total exports of goods +
                                   exports of services

Private sector domestic demand   = private consumption expenditure + gross domestic fixed capital formation by the
                                   private sector + changes in inventories

Public sector domestic demand    = government consumption expenditure + gross domestic fixed capital formation by
                                   the public sector
Domestic demand                  = private sector domestic demand + public sector domestic demand
External demand                  = total exports of goods + exports of services

                                                         90
                Table 1 : Gross Domestic Product by expenditure component
                             (at current market prices) (cont'd)
                                                                                                                  ($Mn)
                                              2002         2003       2004#        2005#               2006
                                                                                                   #
                                                                                              Q1          Q2#       Q3#

Private consumption                        747,850      719,304     767,769     804,708    205,697     213,942   211,518
    expenditure
Government consumption                     131,291      130,151     127,309     121,332     33,015      28,461    30,371
   expenditure
Gross domestic fixed                       286,020      261,367     274,872     288,821     73,597      80,167    86,071
   capital formation
   of which:
   Building and construction               131,752      116,419     107,532     105,773     25,528      24,171    25,275
   Machinery, equipment and                144,832      136,537     150,543     163,158     44,512      51,568    56,097
      computer software
Changes in inventories                        5,660       9,111        7,076      -5,085     1,608        375     -4,107
Total exports of goods                   1,562,121 1,749,089 2,027,031 2,251,744           538,460     586,741   667,228
   Domestic exports                        131,079   122,126   126,386   136,324            34,498      34,992    38,916
   Re-exports                            1,431,041 1,626,964 1,900,645 2,115,419           503,963     551,749   628,312
Imports of goods                         1,601,527 1,794,059 2,099,545 2,311,091           568,261     622,110   685,797
Exports of services                        347,836      362,420     429,563     483,455    125,162     126,163   146,819
Imports of services                        202,494      203,400     242,507     251,832     62,568      64,409    72,754

GDP                                      1,276,757 1,233,983 1,291,568 1,382,052           346,710     349,330   379,349
Per capita GDP ($)                         188,118     181,385     187,657      199,261         --          --        --

GNP                                      1,282,409 1,262,474 1,314,978 1,384,515           354,763     341,708     N.A.
Per capita GNP ($)                         188,951     185,573     191,058      199,616         --          --        --

Total final demand                       3,080,778 3,231,442 3,633,620 3,944,975           977,539 1,035,849 1,137,900
Total final demand                       1,923,066 1,895,705 2,061,787 2,199,754           561,770     580,656   619,543
   excluding re-exports(a)
Domestic demand                          1,170,821 1,199,933 1,177,026 1,209,776           313,917     322,945   323,853
  Private                                  985,985   938,326 1,001,274 1,047,131           270,112     287,276   285,775
  Public                                   184,836   181,607   175,752   162,645            43,805      35,669    38,078
External demand                          1,909,957 2,111,509 2,456,594 2,735,199           663,622     712,904   814,047


Notes :   (a)   Re-export margin is nevertheless retained in the total final demand.
          (#)   Figures are subject to revision later on as more data become available.
          (--) Not applicable.
          N.A. Not available.




                                                             91
                       Table 2 : Rates of change in Gross Domestic Product
                            by expenditure component (in real terms)
                                                                                                               (%)


                                              1996         1997        1998         1999      2000   2001    2002




Private consumption expenditure                 3.9          6.2        -6.6         1.4       6.0    2.1     -1.0
Government consumption                          3.8          2.4         0.7         3.1       2.1    6.0     2.5
   expenditure
Gross domestic fixed                           10.9        12.6         -7.3       -16.6      11.0    2.6     -4.5
   capital formation
   of which:
   Building and construction                    7.0        10.5         -2.4       -15.5      -7.6    -1.1    -1.1
   Machinery, equipment and                    12.0        13.1         -7.9       -18.2      27.0     6.2    -7.6
      computer software
Total exports of goods                           4.8         6.1        -4.3          3.7     17.1    -3.3     8.7
   Domestic exports                             -8.4         2.1        -7.9         -7.2      7.5   -10.2   -11.2
   Re-exports                                    7.5         6.8        -3.7          5.4     18.5    -2.4    11.0
Imports of goods                                4.3          7.3        -7.3              *   18.2    -1.9    7.9
Exports of services                            10.2         -0.4        -3.5         8.8      12.1    6.4    10.9
Imports of services                             5.1          3.9         1.6         -4.4      4.2    2.0     3.9

GDP                                             4.2          5.1        -5.5         4.0      10.0    0.6     1.8
Per capita GDP ($)                             -0.3         4.2         -6.2         3.0      9.0    -0.3     0.9

GNP                                             2.4          6.0        -3.5         4.0       8.6    2.2     0.1
Per capita GNP ($)                             -2.1         5.1         -4.3         3.0      7.6     1.3    -0.8

Total final demand                              4.3          6.2        -6.0         1.3      14.4    -0.6    5.1
Total final demand                              2.2          5.8        -7.6         -1.7     11.3    0.4     2.0
   excluding re-exports(a)
Domestic demand                                 2.1          8.2        -9.2         -4.4     10.3    1.0     -0.7
  Private                                       1.2          9.5        -9.9         -5.4     12.3    0.7     -1.0
  Public                                        9.2         -1.0        -3.8          2.1     -2.8    3.3      1.2
External demand                                 5.4          5.3        -4.3         4.4      16.4    -1.7    9.1


Notes :   (a)      Re-export margin is nevertheless retained in the total final demand.

          (#)      Figures are subject to revision later on as more data become available.




                                                             92
                         Table 2 : Rates of change in Gross Domestic Product
                          by expenditure component (in real terms) (cont'd)
                                                                                                                      (%)

                                                                                                        Average annual
                                               2003   2004#      2005#              2006                rate of change:
                                                                                                       10 years    5 years
                                                                                                        1995 to 2000 to
                                                                             Q1#      Q2#        Q3#     2005#      2005#

Private consumption expenditure                -0.9       7.3         3.4    4.5      5.1        4.4       2.1        2.1
Government consumption                          1.9       0.7        -3.1    1.2      -1.5      -1.0       2.0        1.6
   expenditure
Gross domestic fixed                            0.9       3.0         4.1    7.6      5.0       12.7       1.3        1.2
   capital formation
   of which:
   Building and construction                   -5.6   -11.7          -6.1   -11.1    -3.7       -5.7      -3.6       -5.2
   Machinery, equipment and                     6.7    11.0          10.6    23.3    12.8       22.4       4.5        5.1
      computer software
Total exports of goods                         14.2   15.3           11.2   14.4      6.4        8.9       7.1       9.0
   Domestic exports                            -7.3    2.4            7.6   44.4     25.7       -3.2      -3.5      -4.0
   Re-exports                                  16.3   16.3           11.4   12.8      5.3        9.8       8.5      10.3
Imports of goods                               13.1   14.1            8.6   14.0      6.7        8.5       6.2        8.2
Exports of services                             7.9   17.9            8.7    8.9      9.0        8.6       7.7      10.3
Imports of services                            -2.1   14.6            2.9    4.9      8.3        5.5       3.1        4.1

GDP                                             3.2       8.6         7.3    8.0      5.5        6.8       3.9        4.3
Per capita GDP ($)                             3.0        7.3        6.4       --          --     --      2.6        3.4

GNP                                             5.1       8.0         5.6    8.1      2.0       N.A.       3.8        4.2
Per capita GNP ($)                             4.8        6.8        4.8       --          --     --      2.5        3.3

Total final demand                              8.1   12.0            7.8   11.1      6.4        7.7       5.1        6.4
Total final demand                              3.5       9.2         5.3    9.9      7.1        6.1       2.9        4.0
   excluding re-exports(a)
Domestic demand                                 0.1     5.1           1.9     6.7      5.5       4.9       1.3        1.5
  Private                                      -0.2     6.4           3.4     9.0      6.9       6.3       1.5        1.8
  Public                                        1.7    -1.6          -7.0    -6.0     -5.3      -5.2       0.1       -0.5
External demand                                13.1   15.8           10.7   13.3      6.8        8.9       7.2        9.2


Notes (cont'd) :      (*)    Change of less than 0.05%.
                      (--)   Not applicable.
                      N.A. Not available.




                                                                93
                       Table 3 : Gross Domestic Product by economic activity
                                         (at current prices)

                                      2001               2002                  2003                2004#              2005#
                                            %                   %                    %                    %                  %
                                     $Mn share           $Mn share            $Mn share            $Mn share          $Mn share


Agriculture and fishing              1,003    0.1       1,002     0.1          824     0.1          886     0.1        847     0.1
Mining and quarrying                  174       *         136         *        116         *         72       *        100       *
Manufacturing                       59,760    4.8      51,396     4.2       44,403     3.7       44,455     3.5     45,841     3.4
Electricity, gas and water          37,957    3.1      39,609     3.2       38,839     3.2       39,726     3.2     39,852     3.0
Construction                        57,167    4.6      51,534     4.2       44,910     3.7       40,376     3.2     38,612     2.9
Services                        1,088,211    87.5 1,091,272      88.4 1,073,941       89.3 1,130,301       90.0 1,210,568     90.6
 Wholesale, retail and           309,926     24.9    310,500     25.1      308,872    25.7      345,092    27.5    377,800    28.3
  import and export
  trades, restaurants and
  hotels

 Transport,                      117,526      9.4    121,766      9.9      117,420     9.8      126,820    10.1    136,576    10.2
   storage and
   communications
 Financing, insurance,           251,495     20.2    247,045     20.0      251,085    20.9      266,834    21.2    296,168    22.2
   real estate and
   business services

 Community,                      262,960     21.1    265,746     21.5      261,917    21.8      263,756    21.0    257,488    19.3
  social and personal
  services

 Ownership of premises           146,304     11.8    146,214     11.8      134,648    11.2      127,799    10.2    142,536    10.7


GDP at factor cost              1,244,271 100.0 1,234,949 100.0 1,203,034 100.0 1,255,816 100.0 1,335,821 100.0

Taxes on production and             53,917             43,325               48,057               58,729             63,111
   imports

Statistical discrepancy (%)              *                -0.1                 -1.4                 -1.8               -1.2

GDP at current                  1,298,813           1,276,757             1,233,983            1,291,568          1,382,052
 market prices


Notes : Figures may not add up exactly to the total due to rounding.
           (#)   Figures are subject to revision later on as more data become available.
           (*)   Less than 0.05%.




                                                                 94
         Table 4 : Rates of change in Gross Domestic Product by economic activity
                                       (in real terms)
                                                                                                                       (%)

                                             2001      2002     2003      2004#    2005#       2005             2006

                                                                                             Q3#       Q4#     Q1#     Q2#


Agriculture and fishing                        4.1      -0.7      -5.6      2.8       2.1     5.4      -0.8    2.6     -0.4

Mining and quarrying                         -14.1     -11.1        2.2   -17.0     10.3     18.9      7.0    18.4     11.4

Manufacturing                                 -9.1     -10.0    -10.3       1.7       2.1     4.1      5.9     7.0      5.3

Electricity, gas and water                     1.7       3.8        1.8     2.0       3.4     0.5      4.3     -0.1     2.2

Construction                                  -2.2      -1.5      -4.9     -9.8      -6.6    -5.5     -12.4   -12.3    -4.1

Services                                       1.8       2.8        4.5     9.9       7.9     8.5      7.7     9.1      7.3

   Wholesale, retail and                       0.3      4.5         9.1    15.1     11.1     11.0     10.9    12.4      6.8
     import and export trades,
     restaurants and hotels

   Transport, storage and                      1.9      6.5         0.7    13.9     13.5     15.3     13.5    11.2      6.8
         communications

   Financing, insurance,                       0.5      2.7         5.7    13.1      8.9     10.0      7.6    13.1     14.6
      real estate and business
      services

   Community, social and                       4.0      -0.6        0.6     2.6      0.9      1.1      1.5     1.3      1.2
     personal services

   Ownership of premises                       3.4      2.0         2.7     0.9      4.2      4.3      4.1     2.7      2.0

Taxes on production and                       -1.1      -0.1        3.4    13.0       1.0    10.1      -5.0    3.3      7.6
  imports

GDP at constant (2000)                         0.6       1.8        3.2     8.6       7.3     8.2      7.5     8.0      5.5
  market prices



Note :       (#)   Figures are subject to revision later on as more data become available.




                                                               95
                      Table 5 : Balance of payments account by major component
                                           (at current prices)
                                                                                                                                  ($Mn)
                                                                               #            #
                                         2001       2002      2003        2004       2005            2005                 2006
                                                                                                      #          #         #          #
                                                                                                   Q3         Q4        Q1         Q2

Current account                         76,315    96,800   128,240      122,491    157,692       43,367     49,547   36,584      15,012

  Goods                                -64,970   -39,406   -44,970      -72,514    -59,347       -6,941   -13,083    -29,801   -35,369
  Services                             126,620   145,341   159,020      187,056    231,623       60,661     70,221   62,594      61,754
  Income                                28,543     5,652    28,491        23,410     2,463       -6,085     -3,214    8,053      -7,622
  Current transfers                    -13,878   -14,787   -14,301      -15,461    -17,046       -4,268     -4,377    -4,262     -3,750


Capital and financial account          -97,359 -151,179 -179,086 -184,640 -160,882              -48,610   -50,400    -49,186   -26,394

  Capital and financial                -60,829 -169,720 -171,497 -159,155 -150,202              -45,639   -39,746    -37,723   -16,330
   non-reserve assets
   (net change)
    Capital transfers                   -9,155   -15,686    -8,292        -2,561    -5,237         -683       -390     -415         472
    Financial non-reserve              -51,674 -154,033 -163,205 -156,594 -144,966              -44,956   -39,356    -37,308   -16,803
      assets (net change)
      Direct investment                96,948    -60,685    63,372      -91,038    25,845       -30,607     51,554   27,362    -29,913
      Portfolio investment            -322,045 -302,484 -264,619 -306,368 -168,100              -19,263     13,063   34,018    -78,343
      Financial derivatives            39,640     51,563    78,288      44,319     13,754          952       2,847    2,275      14,544
      Other investment                133,783    157,573   -40,247    196,492      -16,464       3,961 -106,821 -100,963         76,910
                                (a)
  Reserve assets (net change)          -36,530    18,541    -7,589      -25,486    -10,679       -2,971   -10,654    -11,463   -10,063


Net errors and omissions                21,044    54,379    50,846        62,149     3,190        5,244        853   12,602      11,381

Overall balance of                      36,530   -18,541     7,589        25,486    10,679        2,971     10,654   11,463      10,063
 payments



Notes :    Figures may not add up exactly to the total due to rounding.

           (a)    A negative value for net change in reserve assets represents a net increase, and a positive value represents a net
                  decrease.

           (#)    Figures are subject to revision later on as more data become available.




                                                                   96
                                    Table 6 : Visible and invisible trade
                                        (at current market prices)
                                                                                                                             ($Mn)

                                  2001        2002         2003        2004#       2005#      2005                 2006
                                                                                                    #          #
                                                                                               Q4         Q1         Q2#       Q3#


Total exports of goods       1,480,987 1,562,121 1,749,089 2,027,031 2,251,744 602,671 538,460 586,741 667,228

Imports of goods             1,549,222 1,601,527 1,794,059 2,099,545 2,311,091 615,754 568,261 622,110 685,797

Visible trade balance          -68,235      -39,406     -44,970      -72,514     -59,347 -13,083 -29,801 -35,369 -18,569
                                 (-4.4)       (-2.5)      (-2.5)       (-3.5)       (-2.6)    (-2.1)     (-5.2)     (-5.7)    (-2.7)

Exports of services            320,799     347,836      362,420     429,563      483,455 135,275 125,162 126,163 146,819

Imports of services            194,180     202,494      203,400     242,507      251,832     65,054     62,568     64,409    72,754

Invisible trade balance        126,619     145,342      159,020     187,056      231,623     70,221     62,594     61,754    74,065
                                 (65.2)      (71.8)       (78.2)       (77.1)      (92.0) (107.9) (100.0)          (95.9) (101.8)

Exports of goods and         1,801,786 1,909,957 2,111,509 2,456,594 2,735,199 737,946 663,622 712,904 814,047
services

Imports of goods and         1,743,402 1,804,021 1,997,459 2,342,052 2,562,923 680,808 630,829 686,519 758,551
services

Visible and invisible           58,384     105,936      114,050     114,542      172,276     57,138     32,793     26,385    55,496
 trade balance                   <3.3>        <5.9>       <5.7>        <4.9>       <6.7>     <8.4>      <5.2>      <3.8>     <7.3>



Notes : Figures in this table are reckoned on a GDP basis.
         (#)     Figures are subject to revision later on as more data become available.

         ( )     As a percentage of the total value of imports of goods/services.
         < >     As a percentage of the total value of imports of goods and services.




                                                               97
                               Table 7 : Total exports of goods by market
                                            (in value terms)

                             2001      2002       2003      2004           2005             2005              2006
                                                                                             Q4        Q1         Q2           Q3
                                               (% change)                            $Mn      (% change over a year earlier)


All markets                   -5.8       5.4      11.7      15.9    11.4     2,250,174      10.0      12.1        5.4          8.4

Mainland of China              0.6      12.3      21.1      19.7    14.0     1,012,565      14.5      18.4        8.5      13.5

United States                 -9.8       1.0       -2.6      5.4     5.6          360,639    1.7       3.8       -0.1          0.7

Japan                          0.5      -4.5      12.3      14.4    10.3          118,578    5.7       6.9        2.3          0.0

Germany                      -13.9      -5.3      15.1      11.9    15.6           72,720   14.7      10.5        2.5          0.3

United Kingdom               -12.2      -2.0       5.8      14.8     5.2           69,247    0.1       2.1        3.6          7.9

Taiwan                       -11.1      -2.2      22.2      16.2     2.7           50,427    3.0       4.1       -6.3          8.6

Republic of Korea             -9.4      17.2      16.9      24.0     9.5           48,241   16.4      16.3      10.5           9.8

Singapore                    -19.5       6.8      13.0      22.0     6.8           46,541    3.4      -1.0       -3.7      13.7

Rest of the world             -8.4       3.5       7.1      17.3    13.3          471,215   10.4      10.3        5.9          6.3




Note :      Figures may not add up exactly to the total due to rounding.




                                                              98
                                         Table 8 : Imports of goods by source
                                                    (in value terms)

                                 2001      2002       2003      2004          2005             2005              2006
                                                                                                Q4        Q1         Q2           Q3
                                                   (% change)                           $Mn      (% change over a year earlier)


All sources                       -5.4       3.3      11.5      16.9       10.3   2,329,469    11.3      13.8       8.1      10.7

Mainland of China                 -4.6       5.1        9.6     16.9       14.3   1,049,335    13.5      16.9      11.0      10.8

Japan                            -11.2       3.4      17.2      19.7        0.1      256,501    1.5       4.4      -1.1           5.1

Taiwan                           -13.1       7.4        8.0     22.8        9.4      168,227   21.2      19.4      18.4      20.4

Singapore                         -2.8       3.9      19.6      22.5       21.8      135,190   32.6      34.3      15.9      17.0

United States                     -7.0     -12.8        7.9     13.4        6.5      119,252   -2.4       0.1      -5.0           5.1

Republic of Korea                -12.2       7.3      15.0      15.0        2.6      103,035   15.4      19.8      13.1           7.7

Rest of the world                  0.5       2.2      12.1      13.6        8.4      497,928    6.2       8.0       4.1      10.1


Note :      Figures may not add up exactly to the total due to rounding.




                      Table 9 : Retained imports of goods by end-use category
                                          (in value terms)

                                 2001      2002       2003      2004          2005             2005              2006
                                                                                                Q4        Q1         Q2           Q3
                                                   (% change)                           $Mn      (% change over a year earlier)


Overall                           -9.1      -9.0        2.6     14.8        7.3      585,301   19.5     22.7       18.5      14.8

Foodstuffs                        -2.6       0.2        1.5       8.6       3.1       50,763    5.1       4.1       8.5           4.7

Consumer goods                     3.9      -5.2       -1.8       7.4       5.5      127,819   19.5     12.9       24.8       -5.5

Fuels                            -10.2       3.9      12.9      37.5       23.5       56,964   14.9     40.0       19.4      15.2

Raw materials and                -22.3      -1.6      10.7      17.6        4.2      215,854   14.0     14.3        7.9           6.8
 semi-manufactures

Capital goods                     -2.8     -24.9       -6.6     13.3       10.8      134,658   36.0     38.9       27.4      46.9


Note :      Figures may not add up exactly to the total due to rounding.




                                                                   99
                      Table 10 : Exports and imports of services by component
                                     (at current market prices)

                               2001      2002       2003      2004#         2005#             2005               2006
                                                                                                   #         #
                                                                                              Q4        Q1         Q2#       Q3#
                                                 (% change)                             $Mn     (% change over a year earlier)


Exports of services              1.8       8.4        4.2      18.5      12.5       483,455   13.9      14.1       14.9      14.1

     Transportation             -5.9      10.8        3.8      25.5      12.5       152,147   11.9      10.2       10.1          9.6

     Travel                      0.7      25.4       -4.4      26.1      14.1        79,994   15.3      13.7       12.9          9.6

     Trade-related               9.0       9.0      12.2       12.6      11.6       163,498   11.1      12.9       11.4      12.9

     Other services              3.4      -5.9       -1.4      12.7      12.9        87,816   22.0      23.3       31.4      28.5

Imports of services              0.9       4.3        0.4      19.2       3.8       251,832    1.6       4.7        9.2          7.0

     Transportation              4.7      -4.7        7.8      29.4       8.0        73,067    3.8       7.0       10.1          7.9

     Travel                     -1.4       0.8       -8.0      15.9       0.1       103,492   -1.2       1.6        8.0          3.2

     Trade-related               5.7      24.2        9.2       3.2      10.3        18,211    8.2       4.9        2.5          3.5

     Other services              0.5      20.0        8.2      19.7       3.8        57,062    1.5       7.6       11.8      14.2

Net exports of services          3.3      14.8        9.4      17.6      23.8       231,623   28.3      25.4       21.5      22.1



Notes :   Figures may not add up exactly to the total due to rounding.

          (#) Figures are subject to revision later on as more data become available.




                                                                 100
                              Table 11 : Incoming visitors by source


                                 2001        2002      2003          2004      2005      2005              2006
                                                                                           Q4        Q1       Q2         Q3

('000)

All sources                  13 725.3    16 566.4   15 536.8   21 810.6     23 359.4   6 405.8   6 226.3   5 971.0   6 374.7

Mainland of China             4 448.6     6 825.2    8 467.2   12 245.9     12 541.4   3 364.0   3 591.8   3 114.5   3 492.3

South and Southeast Asia      1 746.6     1 905.2    1 359.6    2 077.7      2 413.0    751.9     543.6     695.7     601.8

Taiwan                        2 418.8     2 428.8    1 852.4    2 074.8      2 130.6    541.3     526.8     513.0     599.0

Europe                        1 019.9     1 083.9     780.8     1 142.7      1 398.0    414.9     351.6     364.5     360.0

Japan                         1 336.5     1 395.0     867.2     1 126.3      1 210.8    326.0     320.7     305.1     336.9

United States                    935.7    1 000.8     683.8     1 051.7      1 143.1    313.8     264.0     300.2     276.4

Others                        1 819.2     1 927.4    1 525.8    2 091.7      2 522.6    693.9     627.7     677.9     708.3



(% change over a year earlier)

All sources                        5.1       20.7       -6.2         40.4        7.1       5.8     13.8        8.4       6.7

Mainland of China                 17.5       53.4       24.1         44.6        2.4       3.0     18.2        9.5       6.0

South and Southeast Asia             *        9.1      -28.6         52.8       16.1     12.7        8.9     12.7      10.5

Taiwan                             1.4        0.4      -23.7         12.0        2.7       2.2       4.9      -0.1       4.4

Europe                            -4.6        6.3      -28.0         46.3       22.3     17.6      14.0        5.5       9.4

Japan                             -3.3        4.4      -37.8         29.9        7.5      -1.7       1.2     15.3      11.0

United States                     -3.1        7.0      -31.7         53.8        8.7       2.7       1.2       2.3       0.5

Others                             5.6        5.9      -20.8         37.1       20.6     15.8      15.4        7.9       7.9



Notes : Figures may not add up exactly to the total due to rounding.
         (*)    Change of less than 0.05%.




                                                               101
                                               Table 12 : Property market


                                                  1996          1997          1998           1999       2000          2001          2002



Completion of new property by the private sector
('000 m2 of internal floor area)
Residential property(a) (in units)          19 875            18 202        22 278         35 322      25 790       26 262        31 052
Commercial property                            390               705           945            634         160          208           304
   of which :
   Office space                                269               456           737            428          96            76          166
   Other commercial premises(b)                121               249           208            206          64           132          138
Industrial property(c)                         440               343           300            191          62            45           29
   of which :
   Industrial-cum-office premises              115                72           145             40          37            14             0
   Conventional flatted factory space          242               181            31              4          19            30             3
                     (d)
   Storage premises                             83                90           124            147           6             0            27
Production of public housing
(in units)
Rental housing flats(e)                         18 358        16 046        14 267         26 733      40 944       47 590        20 154
Subsidized sales flats(e)                       10 725        21 535        21 993         26 532      22 768       25 702         1 072
Building plans with consent to
commence work in the private sector
('000 m2 of usable floor area)
Residential property(f)                        1 058.2       1 631.4        1 472.0        1 692.8    1 142.7       1 002.5         790.0
Commercial property                            1 005.7         599.0          395.7          287.5      337.5         265.0         365.3
Industrial property(g)                           530.5         461.6           69.5           84.9      129.2          45.7         107.1
Other properties                                 375.8         259.2          201.5          125.8      240.2          75.0         109.3
Total                                          2 970.2       2 951.2        2 138.7        2 190.9    1 849.5       1 388.1       1 371.8
Agreements for sale and purchase of property
(Number)
Residential property(h)                         129 484      172 711        85 616         77 087      65 340       69 667        72 974
  Primary market                                   N.A.       15 806        23 441         18 325      13 911       18 366        23 088
  Secondary market                                 N.A.      156 905        62 175         58 762      51 429       51 301        49 886
Selected types of non-residential properties(i)
  Office space                                     N.A.         N.A.          N.A.           N.A.       1 724         1 774         1 639
  Other commerical premises                        N.A.         N.A.          N.A.           N.A.       2 411         2 989         3 167
  Flatted factory space                            N.A.         N.A.          N.A.           N.A.        N.A.          N.A.         3 756

Notes : (a)   Figures before 2002 cover all completed residential premises to which either temporary or full Occupation Permits have been
              granted, as well as village type houses issued with Letters of Compliance. Property developments subject to a Consent
              Scheme need a Certificate of Compliance, Consent to Assign or Consent to Lease in addition to an Occupation Permit before
              the premises can be individually assigned. Village-type housing units are excluded as from 2002 and units issued with
              temporary Occupation Permits are also excluded as from 2004 onwards.
              Residential premises here pertain to private residential units, excluding units built under the Private Sector Participation
              Scheme (PSPS), Home Ownership Scheme (HOS), Buy or Rent Option, Mortgage Subsidy Scheme, Sandwich Class
              Housing Scheme, Urban Improvement Scheme (UIS) and Flat-for-Sale Scheme. Figures from 2004 onwards also cover
              those private flats converted from subsidised flats.
        (b)   These include retail premises and other premises designed or adapted for commercial use, with the exception of purpose-
              built offices. Car-parking space and commercial premises built by the Hong Kong Housing Authority and the Hong Kong
              Housing Society are excluded.
        (c)   These include industrial-cum-office premises, but exclude specialised factory buildings which are developed mainly for own
              use.
        (d)   These include storage premises at the container terminals and the airport.




                                                                   102
                                         Table 12 : Property market (cont'd)


                                                   2003          2004           2005          2005                   2006
                                                                                                   Q4        Q1             Q2           Q3

Completion of new property by the private sector
('000 m2 of internal floor area)
Residential property(a) (in units)          26 397             26 036         17 321         1 522        2 785         5 765          3 555
Commercial property                            417                371            145            83            8            65             42
   of which :
   Office space                                299                 280            34                2          1            28            36
   Other commercial premises(b)                118                  91           111               81          8            37             6
Industrial property(c)                           15                  1            17               13         15             7             4
   of which :
   Industrial-cum-office premises                15                  0             4                0          0             0             0
   Conventional flatted factory space             0                  1             0                0          0             0             0
   Storage premises(d)                            0                  0            13               13         15             7             4
Production of public housing
(in units)
Rental housing flats(e)                          13 705        20 614         24 691         3 722        2 033         2 397              0
Subsidized sales flats(e)                           320             0              0             0            0             0              0
Building plans with consent to
commence work in the private sector
('000 m2 of usable floor area)
Residential property(f)                          1 038.4         530.0         550.7         253.8        174.9          88.5         343.9
Commercial property                                200.0         161.3         481.9         228.0         15.5         100.9          38.4
Industrial property(g)                               0.8          16.4          35.1           2.9          1.4          13.1           8.2
Other properties                                   444.2         407.1         408.0          61.8         28.1          46.6          98.7
Total                                            1 683.3       1 114.8       1 475.8         546.5        220.0         249.1         489.2
Agreements for sale and purchase of property
(Number)
Residential property(h)                         71 576        100 630       103 362         19 288       17 724        21 811        22 241
  Primary market                                26 498         25 694        15 994          4 193        1 294         3 023         5 902
  Secondary market                              45 078         74 936        87 368         15 095       16 430        18 788        16 339
Selected types of non-residential properties(i)
  Office space                                   1 817           3 213         3 431           595          649           798            678
  Other commerical premises                      4 142           7 833         7 143         1 136        1 115         1 171          1 036
  Flatted factory space                          3 813           5 889         6 560         1 471        1 690         2 040          1 872

Notes        (e)   The Housing Authority's housing production figures have been revised as from 1998. The revision is to exhaustively
(cont'd) :         cover all housing production and to count projects (including surplus HOS projects) which undergo transfer of usage at
                   the time of disposal and according to their actual usage. Moreover, surplus HOS courts and blocks pending disposal are
                   excluded from production statistics until they are disposed. Rental and sales flats projects of the Housing Society are
             (f)   As from 1995, the classification of residential property has been revised to include developments under the UIS of the
                   Housing Society, but to exclude developments under the HOS and the PSPS of the Housing Authority.
             (g)   These include multi-purpose industrial premises designed also for office use.

             (h)   The figures are derived from sale and purchase agreements of domestic units received for registration in the Land Registry
                   for the relevant periods. They generally relate to transactions executed up to four weeks prior to their submission for
                   registration. Sales of domestic units refer to sale and purchase agreements with payment of stamp duty. These statistics
                   do not include sales of units under the Home Ownership Scheme, the Private Sector Participation Scheme and the Tenants
                   Purchase Scheme except those after payment of premium. Primary sales generally refer to sales from developers.
                   Secondary sales refer to sales from parties other than developers.

             (i)   Timing of the figures for non-residential properties is based on the date on which the S&P Agreement is signed, which
                   may differ from the date on which the Agreement is received for registration in the Land Registry.
             N.A. Not available.


                                                                    103
                                  Table 13 : Property prices and rentals


                                        1996         1997          1998         1999         2000         2001         2002



(Index (1999=100))

Property price indices :
   Residential flats(a)                 116.9        163.1         117.1       100.0         89.6          78.7         69.9
                 (b)
   Office space                         188.4        213.1         134.5       100.0         89.9          78.7         68.4
   Shopping space                       134.0        177.3         128.3       100.0         93.6          86.8         85.0
   Flatted factory space                171.4        168.9         131.8       100.0         91.2          82.0         74.8


Property rental indices(c):
   Residential flats                    119.0        134.5         112.6       100.0         98.1          95.4         83.4
                 (b)
   Office space                         152.3        156.8         135.9       100.0         98.5        101.0          85.4
   Shopping space                       117.8        123.5         111.2       100.0        101.3          99.4         92.9
   Flatted factory space                132.4        132.5         118.1       100.0         95.4          90.3         82.7


(% change)

Property price indices :
   Residential flats(a)                   8.9         39.5         -28.2       -14.6         -10.4        -12.2        -11.2
                 (b)
   Office space                          -3.2         13.1         -36.9       -25.7         -10.1        -12.5        -13.1
   Shopping space                         3.3         32.3         -27.6       -22.1          -6.4         -7.3         -2.1
   Flatted factory space                -13.7         -1.5         -22.0       -24.1          -8.8        -10.1         -8.8


Property rental indices(c):
   Residential flats                     -1.4         13.0         -16.3       -11.2          -1.9         -2.8        -12.6
                 (b)
   Office space                         -14.7          3.0         -13.3       -26.4          -1.5          2.5        -15.4
   Shopping space                           *          4.8         -10.0       -10.1           1.3         -1.9         -6.5
   Flatted factory space                 -9.9          0.1         -10.9       -15.3          -4.6         -5.3         -8.4


Notes :    (a)    Figures pertain to prices of existing flats traded in the secondary market, but not new flats sold in the
                  primary market.

           (b)    Since 2000, price and rental indices for office space in the private sector have been recompiled according
                  to the revised grading criteria for office space. Hence, the figures from 2000 onwards are not strictly
                  comparable to those in the earlier years.

           (c)    All rental indices shown in this table have been adjusted for concessionary leasing terms such as provision
                  of refurbishment, granting of rent-free periods, and waiver of miscellaneous charges, if known.
                  For residential property, changes in rentals cover only new tenancies for which rentals are freshly
                  determined. For non-residential property, changes in rentals cover also lease renewals upon which rentals
                  may be revised.




                                                             104
                              Table 13 : Property prices and rentals (cont'd)


                                            2003         2004          2005#       2005            2006
                                                                                    Q4#     Q1#        Q2#       Q3+

(Index (1999=100))
Property price indices :
   Residential flats(a)                     61.6         78.0           92.0        90.1    91.5      93.2      91.9
   Office space(b)                          62.5         99.3          133.0       135.4   131.0     139.5     144.2
   Shopping space                           85.5        119.3          149.3       151.0   151.6     153.8     150.7
   Flatted factory space                    71.7         88.6          125.0       136.6   144.3     153.9     162.8
Property rental indices(c):
   Residential flats                        73.6          77.7          86.5        89.9    89.3      90.9      91.8
   Office space(b)                          74.6          78.1          96.4       105.4   110.1     117.1     120.0
   Shopping space                           86.4          92.8         100.5       103.4   103.2     102.1     101.3
   Flatted factory space                    74.9          77.3          82.6        84.5    86.3      89.9      92.2
(% change over a year earlier)
Property price indices :
   Residential flats(a)                    -11.9          26.6          17.9         8.0     1.8      -1.4      -1.8
                                                                                                             <55.0>
                                                                                                             {-45.8}
   Office space(b)                           -8.6         58.9          33.9        20.9     6.3       2.9        4.8
                                                                                                             <144.4>
                                                                                                              {-35.9}
   Shopping space                            0.6          39.5          25.1        12.5     5.1       0.5       1.2
                                                                                                             <86.0>
                                                                                                             {-22.1}
   Flatted factory space                     -4.1         23.6          41.1        37.0    32.9      25.6       23.2
                                                                                                             <132.6>
                                                                                                               {-6.2}
Property rental indices(c):
   Residential flats                       -11.8           5.6          11.3        12.1     8.2       6.3       4.0
                                                                                                             <27.7>
                                                                                                             {-33.9}
   Office space(b)                         -12.6           4.7          23.4        28.4    25.5      26.2      20.2
                                                                                                             <67.4>
                                                                                                             {-24.5}
   Shopping space                            -7.0          7.4           8.3         7.7     6.6       3.1      -1.6
                                                                                                             <20.5>
                                                                                                             {-18.7}
   Flatted factory space                     -9.4          3.2           6.9         6.6     6.5       9.1      11.8
                                                                                                             <27.7>
                                                                                                             {-31.0}


Notes (cont'd) :     (#)   Figures for non-residential property are provisional.
                     (+)   Provisional figures.
                     (*)   Change of less than 0.05%.
                     < > % change from the trough in 2003.
                     {}    % change from the peak in 1997.


                                                                 105
                                           Table 14 : Monetary aggregates


                                          1996           1997            1998           1999            2000           2001            2002


(as at end of period)
Hong Kong dollar money supply ($Mn) :
    M1                            198,311             188,135        178,260         205,339         203,966        229,841         259,411
    M2(a)                       1,503,603           1,666,419      1,828,691       1,923,481       1,987,963      1,998,774       1,984,049
    M3(a)                       1,520,461           1,684,325      1,840,824       1,935,471       2,002,358      2,016,635       2,004,225
Total money supply ($Mn)
   M1                                 217,460         208,093        197,666         225,156         243,847        258,056         295,650
   M2                               2,532,236       2,788,808      3,111,942       3,386,196       3,649,492      3,550,060       3,518,326
   M3                               2,611,636       2,871,425      3,168,199       3,434,467       3,692,753      3,594,130       3,561,852
Deposit(b) ($Mn)
   HK$                              1,400,077       1,551,555      1,699,726       1,773,169       1,851,177      1,854,651       1,824,911
   Foreign currency                 1,058,180       1,158,728      1,300,302       1,477,448       1,676,670      1,551,852       1,492,631
   Total                            2,458,256       2,710,282      3,000,027       3,250,617       3,527,847      3,406,502       3,317,542
Loans and advances ($Mn)
   HK$                              1,447,844       1,742,481      1,695,027       1,607,126       1,652,191      1,647,684       1,615,667
   Foreign currency                 2,467,045       2,379,189      1,609,400       1,205,784         809,259        537,301         460,659
   Total                            3,914,890       4,121,670      3,304,427       2,812,910       2,461,450      2,184,986       2,076,325
Nominal Effective Exchange Rate Indices
(Jan 2000 =100) (c)(d)
    Trade-weighted                    94.0                98.0          103.4           100.9          101.7           104.7          104.0
    Import-weighted                   93.0                97.9          105.5           101.4          101.5           105.1          104.7
    Export-weighted                   95.1                98.1          101.3           100.4          101.9           104.3          103.3
(% change)
Hong Kong dollar money supply :
   M1                                     15.5            -5.1            -5.2           15.2            -0.7           12.7            12.9
   M2(a)                                  19.3              --             9.7            5.2             3.4            0.5            -0.7
   M3(a)                                  18.9              --             9.3            5.1             3.5            0.7            -0.6
Total money supply :
   M1                                     14.2            -4.3           -5.0            13.9             8.3            5.8            14.6
   M2                                     10.9              --           11.6             8.8             7.8           -2.7            -0.9
   M3                                     10.5              --           10.3             8.4             7.5           -2.7            -0.9
Deposit(b)
   HK$                                    19.5               --           9.5             4.3            4.4             0.2            -1.6
   Foreign currency                        0.3               --          12.2            13.6           13.5            -7.4            -3.8
   Total                                  10.4               --          10.7             8.4            8.5            -3.4            -2.6
Loans and advances
   HK$                                    17.0            20.4            -2.7           -5.2             2.8           -0.3            -1.9
   Foreign currency                       -1.4            -3.6           -32.4          -25.1           -32.9          -33.6           -14.3
   Total                                   4.7             5.3           -19.8          -14.9           -12.5          -11.2            -5.0
Nominal Effective Exchange Rate Indices(c)(d)
  Trade-weighted                        2.6                4.3             5.5           -2.4             0.8            2.9            -0.7
  Import-weighted                       3.8                5.3             7.8           -3.9             0.1            3.5            -0.4
  Export-weighted                       1.5                3.2             3.3           -0.9             1.5            2.4            -1.0

Definition of Terms :
The Hong Kong Dollar Money Supply is the Hong Kong dollar component of the respective monetary aggregate. Starting from April 1997,
money supply definition has been revised to include short-term Exchange Fund placements of less than one month in the monetary aggregates.
As such, figures after 1997 cannot be compared with those in the previous period.

Total Money Supply:
    M1:    Legal tender notes and coins with the public, plus customers’ demand deposits with licensed banks.
    M2:    M1 plus customers’ savings and time deposits with licensed banks, plus negotiable certificates of deposit issued by licensed banks
           and held outside the monetary sector.
    M3:    M2 plus customers’ deposits with restricted licence banks and deposit-taking companies, plus negotiable certificates of deposit
           issued by such institutions and held outside the monetary sector.


                                                                   106
                                    Table 14 : Monetary aggregates (cont'd)


                                            2003           2004            2005           2005                       2006
                                                                                            Q4              Q1               Q2            Q3

(as at end of period)
Hong Kong dollar money supply ($Mn) :
     M1                             354,752             412,629         348,248        348,248         356,869        353,297         367,188
     M2(a)                        2,107,269           2,208,591       2,329,669      2,329,669       2,453,240      2,506,013       2,651,546
     M3(a)                        2,122,861           2,219,557       2,345,838      2,345,838       2,469,679      2,523,153       2,669,082
Total money supply ($Mn)
    M1                                   413,423        484,494         434,684        434,684         438,946        447,433         470,389
    M2                                 3,813,442      4,166,706       4,379,057      4,379,057       4,522,812      4,636,476       4,856,179
    M3                                 3,858,044      4,189,544       4,407,188      4,407,188       4,551,810      4,666,865       4,886,537
Deposit(b) ($Mn)
   HK$                                 1,930,790      2,017,911       2,131,579      2,131,579       2,248,321      2,300,179       2,441,992
   Foreign currency                    1,636,227      1,848,145       1,936,322      1,936,322       1,959,835      2,029,667       2,108,527
   Total                               3,567,018      3,866,056       4,067,901      4,067,901       4,208,156      4,329,846       4,550,519
Loans and advances ($Mn)
   HK$                                 1,573,079      1,666,740       1,797,350      1,797,350       1,792,148      1,861,763       1,931,779
   Foreign currency                      462,000        488,964         514,637        514,637         535,632        555,727         566,351
   Total                               2,035,079      2,155,704       2,311,987      2,311,987       2,327,780      2,417,490       2,498,130
Nominal Effective Exchange Rate Indices
(Jan 2000 =100) (c)(d)
    Trade-weighted                      100.7               98.3            97.4           98.6            97.6             96.2          95.8
    Import-weighted                     101.6               99.2            98.1           99.5            98.2             96.8          96.5
    Export-weighted                      99.8               97.3            96.7           97.7            97.0             95.6          95.1
(% change over a year earlier)
Hong Kong dollar money supply :
    M1                                       36.8           16.3           -15.6          -15.6            -7.8             -2.1           4.7
    M2(a)                                     6.2            4.8             5.5            5.5            11.4             13.2          16.3
    M3(a)                                     5.9            4.6             5.7            5.7            11.5             13.3          16.3
Total money supply :
    M1                                       39.8           17.2           -10.3          -10.3            -5.5              2.1           9.1
    M2                                        8.4            9.3             5.1            5.1             8.6             11.3          14.4
    M3                                        8.3            8.6             5.2            5.2             8.6             11.3          14.4
Deposit(b)
   HK$                                        5.8            4.5             5.6            5.6            12.2             14.0          17.4
   Foreign currency                           9.6           13.0             4.8            4.8             6.0             10.4          14.2
   Total                                      7.5            8.4             5.2            5.2             9.2             12.3          15.9
Loans and advances
   HK$                                       -2.6            6.0             7.8            7.8             5.5              5.9           9.5
   Foreign currency                           0.3            5.8             5.3            5.3            11.0             11.3          12.1
   Total                                     -2.0            5.9             7.2            7.2             6.7              7.1          10.1
Nominal Effective Exchange Rate Indices(c)(d)
   Trade-weighted                           -3.2             -2.4           -0.9            1.3             1.5             -0.9          -1.8
   Import-weighted                          -3.0             -2.4           -1.1            1.3             1.3             -0.9          -1.8
   Export-weighted                          -3.4             -2.5           -0.6            1.3             1.6             -0.8          -1.9

Notes :   (a)    Adjusted to include foreign currency swap deposits.
          (b)    Starting from April 1997, deposits include short-term Exchange Fund placements of less than one month. As such, figures after
                 1997 cannot be compared with those in the previous period.
          (c)    Period average.
          (d)    The Effective Exchange Rate Indices (EERIs) from January 2000 onwards are compiled on the basis of the average merchandise
                 trade pattern from 1999 to 2000. The EERIs for the earlier periods are compiled on the basis of the average merchandise trade
                 pattern in a much earlier period from 1991 to 1993, and have been re-scaled to the new base period for linking up with the new
                 index series.
          (--)   Not applicable.




                                                                    107
                      Table 15 : Rates of change in business receipts indices for
                                     service industries/domains
                                                                                                                  (%)

                                           2001      2002        2003    2004    2005      2005            2006
                                                                                          Q3       Q4     Q1      Q2#

Wholesale trade                           -12.0     -10.7         -5.0    4.7      5.6    4.8      5.7    4.3      5.7

Retail trade                                -1.2      -4.1        -2.3   10.8      6.8    6.1      5.3    6.1      6.7

Import/export trade                       -14.1       -2.8        6.5    12.4    10.6     8.7     10.7   10.3      8.4

Restaurants                                 -2.5      -5.4        -9.7   10.1     6.0     6.3      7.0    8.8     11.1

Hotels                                      -7.6      -2.3       -19.7   39.4    22.1    19.2     23.4   14.7     15.4

Transport(a)                                -2.4      2.3         0.5    22.8    17.8    21.2     15.4   17.6     12.6

Storage                                   -14.9     -19.6         -4.5   17.0    10.4    12.9     12.5    9.2      5.0

Communications                            -13.2       -2.6        -2.4    1.0     5.1     7.9      3.6    1.2      2.5

Banking                                     2.7       -0.8          *     4.4    10.9    17.5      9.2   18.0     24.1

Financing (other than banking)            -12.6     -14.3        17.3    33.2    14.3    30.0     18.7   50.8     57.2

Insurance                                  14.2      10.3        19.1    22.3    16.0    17.9     21.2   35.5     21.9

Real estate                               -16.9       -2.5        6.2    13.5    16.0    12.1     -1.0   -6.0     -5.3

Business services                           -9.6      -5.8        0.5     8.3     4.9     6.2      5.5   19.2     18.1

Film entertainment                         15.2       -9.1        2.3     3.7      5.0   -1.3      7.6    0.6     -0.7

Tourism, convention and exhibition          -3.8     10.7         -7.3   26.5    12.9    10.4     14.8   14.3     18.3
services+

Computer and information                  -11.6       5.7         5.7    20.5    23.4    25.2     25.8   21.5     -1.5
services



Notes :     (a)     Including business receipts from the Airport Authority Hong Kong.
            (#)     Revised figures.
            (+)     Figures from 2005 are provisional figures.
            (*)     Change of less than 0.05%.




                                                                 108
                                 Table 16 : Labour force characteristics


                                    2001      2002      2003      2004      2005      2005              2006
                                                                                        Q4        Q1        Q2        Q3

(%)

Labour force                        61.4      61.8      61.4      61.3      60.9      60.8      61.1      60.8      61.7
participation rate

Seasonally adjusted                   5.1       7.3       7.9       6.8       5.6       5.2       5.2       5.0       4.7
unemployment rate

Underemployment rate                  2.5       3.0       3.5       3.3       2.8       2.5       2.3       2.7       2.3


('000)

Population of working age         5 579.2   5 642.8   5 694.0   5 796.0   5 885.2   5 925.6   5 905.3   5 933.8   5 958.6

Labour force                      3 427.1   3 487.1   3 496.2   3 551.0   3 584.6   3 604.8   3 606.7   3 606.6   3 676.5

Persons employed                  3 252.3   3 231.6   3 219.1   3 308.6   3 384.0   3 423.4   3 426.2   3 427.5   3 496.1

Persons unemployed                 174.8     255.5     277.2     242.5     200.6     181.5     180.5     179.0     180.4

Persons underemployed               85.5     105.2     123.3     116.7      98.6      89.2      82.6      96.0      86.2


(% change over a year earlier)

Population of working age             1.5       1.1       0.9       1.8       1.5       1.6       0.9       1.1       1.1

Labour force                          1.6       1.8       0.3       1.6       0.9       0.8       1.0       1.0       2.4

Persons employed                      1.4      -0.6      -0.4       2.8       2.3       2.3       2.0       1.8       3.3

Persons unemployed                    4.7     46.2        8.5     -12.5     -17.3     -20.4     -14.4     -12.5     -12.2

Persons underemployed                -8.6     23.0      17.3       -5.4     -15.5     -19.8     -24.9      -4.5      -9.0




                                                          109
                   Table 17 : Employment in selected major economic sectors


                                    2001     2002       2003       2004    2005         2005                      2006
                                                                                      Sep       Dec      Mar                 Jun
Major economic sector                                (% change)                      (% change over a year earlier)                   No.

Manufacturing                        -8.6     -9.0      -10.3       -3.0   -2.0       -1.0       1.3      -1.0        -0.5     161 100
  of which :
  Wearing apparel,                 -14.9     -19.3      -11.6       -0.8   -4.7       -1.7      -3.0      -3.7        0.3          20 600
     except footwear
  Textiles                          -8.7      -1.1      -16.8      -11.1    0.5        3.8      0.8      -3.4         -1.6         19 300
  Electronics                      -17.4     -13.1      -18.9       -2.3   -4.7       -4.3     -7.9     -11.9         -9.5         12 900
  Plastic products                 -16.4     -17.0      -19.1      -16.8   -1.3       -1.0     12.7       2.6         -4.7          3 200
  Fabricated metal                 -16.9     -14.6      -20.7       -4.9   -9.7      -12.8     -2.9      -8.3         -4.5          5 600
     products, except
     machinery and
     equipment
Wholesale, retail,                   -1.2     -2.3       -3.0        2.9    2.6        1.8       2.0      1.9         1.8     1036 700
  import/export trades,
  restaurants and hotels
  of which :
  Wholesale, retail and              -1.9     -1.6       -1.9        2.1    2.3        1.3       1.1      1.0         0.9      810 900
     import/export trades
  Restaurants and hotels             1.2      -4.8       -7.3        6.0    3.6        3.7       5.4      5.3         5.3      225 800
Transport, storage and               2.4      -1.8       -4.4        3.7    2.6        2.8       1.4      1.6         -0.2     184 500
   communications
   of which :
   Land transport                     2.6     -0.3        0.5      -2.2    -1.5       -1.1      -1.7      -0.6         0.6         37 900
   Water transport                    3.3      1.0       -3.6       0.1    -0.3        1.2      -4.8      -3.6        -8.1         26 300
   Services allied to                -0.8      1.1       -3.7      10.3     7.9        6.3       7.4       3.6         3.2         62 600
      transport
Financing, insurance,                1.6      -1.3       -1.9        3.6    4.4        4.0       3.8      4.6         4.1      475 900
   real estate and
   business services
   of which :
   Financial institutions            -0.5     -5.6       -6.5        1.1    4.7        5.1       4.8      4.1          4.5     131 500
   Insurance                          7.1      0.3        1.2        2.4    5.9        7.6       0.9      2.3         -4.8      29 200
   Real estate                       -3.0      5.2        0.7        2.2    6.8        5.7       9.6      8.2          5.7      98 200
   Business services                  4.5     -1.2       -0.2        6.0    2.9        2.2       1.1      3.7          4.5     216 300
      except machinery
      and equipment rental
      and leasing
Community, social and                7.2       5.9        2.9        3.2    4.5        5.3       2.7      3.9         3.4      451 700
  personal services
  of which :
  Sanitary and similar               5.1      13.8        6.0        1.5    2.4        5.6       1.5      4.4         1.6          57 700
     services
  Education services                 6.9       2.5        2.9        1.8    1.8        1.2       2.9      4.0         3.6      136 300
  Medical, dental and                5.5       3.2       -0.3        2.5    1.6        2.9       1.9      2.5         4.4       79 300
     other health services
  Welfare institutions              25.4      11.9       13.9        2.1   -0.4       -3.3      -0.5      2.4         4.0       53 400
             (a)
Civil Service                        -3.5     -3.7       -2.4       -3.8   -2.7       -2.4      -1.8      -1.5        -1.5     154 500


Note :   (a) These figures cover only those employed on Civil Service terms of appointment. Judicial officers, consultants, contract
             staff and temporary staff not appointed on Civil Service terms are not included.




                                                                  110
         Table 18 : Number of workers engaged at building and construction sites


                                  2001     2002     2003          2004    2005       2005               2006
                                                                                    Sep       Dec      Mar        Jun

(number)


Building sites


   Private sector                40 556   40 017   33 892     33 619     31 556   30 679    30 310   32 156    30 997
                   (a)
   Public sector                 17 183   11 727   16 183     13 325     10 135   10 571     8 459    8 312     7 822
   Sub-total                     57 738   51 744   50 074     46 944     41 690   41 250    38 769   40 468    38 819


Civil engineering sites


   Private sector                 2 633    2 869    2 755      2 564      2 198    1 861     1 560    1 594     1 707
                   (a)
   Public sector                 19 931   18 611   17 466     16 772     15 378   13 735    14 127   12 835    11 747
   Sub-total                     22 564   21 480   20 221     19 336     17 576   15 596    15 687   14 429    13 454


Total                            80 302   73 223   70 295     66 280     59 266   56 846    54 456   54 897    52 273



(% change over a year earlier)


Building sites


   Private sector                 19.2      -1.3   -15.3          -0.8     -6.1     -7.4      -0.9     -5.3      -0.9
                   (a)
   Public sector                 -37.0    -31.8     38.0      -17.7      -23.9    -12.7     -21.8    -27.6     -22.0
   Sub-total                       -5.8   -10.4      -3.2         -6.3   -11.2      -8.8      -6.3   -11.0       -6.0


Civil engineering sites


   Private sector                 58.9      9.0      -4.0         -6.9   -14.3    -30.4     -45.4    -48.4     -25.2
                   (a)
   Public sector                  19.6      -6.6     -6.2         -4.0     -8.3   -19.1     -16.9    -25.5     -28.5
   Sub-total                      23.1      -4.8     -5.9         -4.4     -9.1   -20.6     -21.0    -29.0     -28.1


Total                              0.9      -8.8     -4.0         -5.7   -10.6    -12.4     -11.1    -16.5     -12.9


Note :    (a) Including the Mass Transit Railway Corporation Limited, the Kowloon-Canton Railway Corporation and the
              Airport Authority Hong Kong.




                                                            111
                Table 19 : Average labour earnings by major economic sector

                                                                                                                            ($)

                                  2001       2002       2003           2004     2005         2005                 2006
Major economic sector                                                                       Q3         Q4        Q1         Q2

Wholesale, retail and           12,700     12,500     12,300      12,400       13,300    12,400     13,400    15,500     12,500
 import/export trades             (2.0)     (-1.6)     (-1.5)          (0.4)    (7.3)     (9.6)      (9.0)     (2.6)      (3.4)
                                 <3.7>      <1.4>      <1.1>       <0.9>       <6.3>     <8.2>      <7.5>     <1.0>      <1.3>


Restaurants and hotels           9,000      8,700      8,100       8,100        8,300     8,000      8,000     9,000      8,000
                                  (0.1)     (-4.2)     (-6.2)      (-0.1)       (1.9)     (-0.4)     (-1.4)    (-0.9)     (0.7)
                                 <1.7>     <-1.2>     <-3.7>       <0.4>       <0.9>     <-1.7>     <-2.7>    <-2.4>     <-1.3>


Transport, storage and          18,900     18,900     18,500      18,300       19,200    18,100     20,200    19,800     18,700
 communications                   (1.3)     (-0.2)     (-1.7)      (-1.3)       (5.0)     (7.4)      (3.1)     (-3.4)     (4.2)
                                 <3.0>      <2.9>      <0.9>      <-0.9>       <4.1>     <6.0>      <1.7>     <-4.9>     <2.1>


Financing, insurance,           19,200     18,800     18,600      18,500       19,100    17,200     19,900    22,200     19,000
 real estate and                  (0.4)     (-2.2)     (-1.4)      (-0.1)       (2.8)     (1.5)      (5.1)     (5.6)      (5.0)
 business services               <2.0>      <0.8>      <1.2>       <0.4>       <1.8>     <0.2>      <3.6>     <4.0>      <2.9>


Community, social and           20,000     19,800     18,900      18,400       18,000    18,100     18,100    17,700     17,800
 personal services                (0.7)     (-1.3)     (-4.7)      (-2.6)       (-2.2)    (-4.5)     (-1.1)    (-0.4)     (-0.1)
                                 <2.3>      <1.8>     <-2.2>      <-2.2>       <-3.1>    <-5.7>     <-2.4>    <-1.9>     <-2.1>


Manufacturing                   11,900     11,800     11,400      11,300       11,600    10,600     11,600    12,900     11,400
                                  (2.1)     (-1.2)     (-3.0)      (-0.6)       (1.8)     (0.8)      (1.2)     (1.3)      (1.1)
                                 <3.8>      <1.9>     <-0.4>      <-0.2>       <0.9>     <-0.5>     <-0.1>    <-0.3>     <-0.9>


All sectors surveyed            15,400     15,300     15,000      14,900       15,400    14,600     15,700    17,000     14,900
                                  (1.8)     (-1.1)     (-1.8)      (-0.7)       (3.5)     (3.2)      (3.7)     (1.3)      (2.2)
                                 <3.5>      <2.0>      <0.8>      <-0.2>       <2.6>     <1.9>      <2.3>     <-0.3>     <0.1>


Notes :   ( )      % change over a year earlier in money terms.
          < >      % change over a year earlier in real terms.
                   The rates of change in real terms are derived from the Real Indices of Payroll per Person Engaged, as
                   from 2006, the Indices are derived by deflating the Nominal Indices of Payroll per Person Engaged by the
                   2004/2005-based Composite CPI. To facilitate comparison, Real Indices of Payroll per Person Engaged
                   prior to 2006 have been re-compiled using the 2004/2005-based Composite CPI.




                                                                 112
                            Table 20 : Rates of change in wage indices by
                                   selected major economic sector
                                                                                                                       (%)

Selected major                 2001      2002       2003          2004    2005          2005                  2006
economic sector                                                                       Sep        Dec       Mar         Jun


(in money terms)

Wholesale, retail and            1.4       -0.6      -1.7         -1.6      1.6        1.9        1.8       -0.3       1.6
 import/export trades

Restaurants and hotels           0.7       -2.6      -4.1         -2.2        *        0.2        0.7       -0.1       1.5

Transport services               0.7       0.6       -1.9         -1.0      1.0        0.5        1.4       -0.8      -1.7

Financing, insurance,           -0.9       -0.8      -0.1         -0.5        *        0.5        1.8       4.0        2.0
  real estate and
  business services

Personal services                0.7       -1.5      -3.1          1.3     -1.5       -4.5       -2.7       -1.5       0.6

Manufacturing                    2.2       -1.4      -2.7         -1.3      1.2        0.5        2.5       2.8        1.1

All sectors surveyed             0.8       -1.0      -1.9         -1.1      0.8        0.8        1.4       0.7        1.1



(in real terms)

Wholesale, retail and            4.1       1.7        0.4         -1.7      0.4        0.6        0.4       -1.7      -0.3
 import/export trades

Restaurants and hotels           3.3       -0.4      -2.1         -2.3     -1.3       -1.1       -0.6       -1.5      -0.4

Transport services               3.4       2.9        0.1         -1.0     -0.2       -0.9         *        -2.2      -3.6

Financing, insurance,            1.7       1.5        2.0         -0.6     -1.2       -0.8        0.5       2.5        0.1
  real estate and
  business services

Personal services                3.3       0.8       -1.1          1.3     -2.7       -5.7       -4.0       -2.9      -1.3

Manufacturing                    4.8       0.8       -0.7         -1.4     -0.1       -0.8        1.2       1.4       -0.8

All sectors surveyed             3.5       1.3        0.2         -1.2     -0.4       -0.6         *        -0.7      -0.7


Notes : The rates of change in real terms are compiled from the Real Wage Indices, as from 2006, the Indices are derived by
        deflating the Nominal Wage Indices by the 2004/2005-based CPI(A). To facilitate comparison, Real Wage Indices
        prior to 2006 have been re-compiled using the 2004/2005-based CPI(A).

        (*) Change of less than 0.05%.




                                                            113
                                      Table 21 : Rates of change in prices

                                                                                                                         (%)


                                         1996         1997          1998         1999        2000         2001         2002




GDP deflator                               5.8          5.6          0.2          -5.8        -5.6         -1.8         -3.5

Domestic demand deflator                   4.9          4.5          0.4          -2.3        -5.0         -2.3         -4.9

Consumer Price Indices(a) :
   Composite CPI                           6.3          5.8          2.8          -4.0        -3.8         -1.6         -3.0
   CPI(A)                                  6.0          5.7          2.6          -3.3        -3.0         -1.7         -3.2
   CPI(B)                                  6.4          5.8          2.8          -4.7        -3.9         -1.6         -3.1
   CPI(C)                                  6.6          6.1          3.2          -3.7        -4.5         -1.5         -2.8

Unit Value Indices :
   Domestic exports                        0.3         -2.4          -2.8         -2.4        -1.0         -4.7         -3.3
   Re-exports                             -0.5         -1.5          -3.9         -2.8        -0.1         -2.0         -2.7
   Total exports of goods                 -0.3         -1.6          -3.8         -2.7        -0.2         -2.3         -2.7
   Imports of goods                       -1.3         -2.3          -4.9         -2.0         0.8         -3.1         -3.9

Terms of Trade Index                       1.0          0.7          1.2          -0.7        -1.0          0.9          1.2

Producer Price Index                      -0.1         -0.3          -1.8         -1.6         0.2         -1.6         -2.7
   for all manufacturing industries

Construction Labour and                    6.8          9.3          7.5           1.4         1.8          0.3         -0.3
   Material Cost Index

Tender Price Indices :
   Public sector                         14.4          17.6          9.1          -4.4       -13.1         -8.5        -11.7
      building projects
   Public housing projects               11.4          18.9          9.0          -3.3       -11.9        -15.1         -9.6


Notes :   (a)   From October 2005 onwards, the year-on-year rates of change in the Consumer Price Indices are derived
                from the 2004/05-based CPI series. For the earlier periods, the year-on-year rates of change are derived from
                the CPIs with old base period.
          (#)   Figures are subject to revision later on as more data become available.
          (*)   Change of less than 0.05%.
          N.A. Not available.




                                                              114
                              Table 21 : Rates of change in prices (cont'd)

                                                                                                                                  (%)

                                                                                                           Average annual
                                 2003     2004       2005                    2006                          rate of change:
                                                                                                         10 years             5 years
                                                                  Q1           Q2          Q3        1995 to 2005       2000 to 2005

                                                 #          #            #            #          #                  #                   #
GDP deflator                       -6.4   -3.6       -0.2         -0.1         -0.1       -0.2               -1.6               -3.1

Domestic demand deflator           -4.5      *#       0.8   #
                                                                  1.1    #
                                                                               2.0    #
                                                                                           2.1   #
                                                                                                             -0.9   #
                                                                                                                                -2.2    #




Consumer Price Indices(a) :
   Composite CPI                   -2.6   -0.4        1.0         1.6          2.0         2.3                  *               -1.4
   CPI(A)                          -2.1      *        1.1         1.3          1.8         2.1                0.2               -1.2
   CPI(B)                          -2.7   -0.5        1.0         1.7          2.1         2.4               -0.1               -1.4
   CPI(C)                          -2.9   -0.9        0.8         1.7          2.3         2.4                  *               -1.5

Unit Value Indices :
   Domestic exports                 0.2    1.5        2.2         -2.9         -3.9       -1.3               -1.3               -0.9
   Re-exports                      -1.5    1.1        1.2         -0.2          0.9        1.5               -1.3               -0.8
   Total exports of goods          -1.4    1.2        1.3         -0.3          0.6        1.4               -1.3               -0.8
   Imports of goods                -0.4    2.9        2.7          1.0          1.9        2.7               -1.2               -0.4

Terms of Trade Index               -1.0   -1.7       -1.4         -1.3         -1.3       -1.3               -0.1               -0.4

Producer Price Index               -0.3    2.2        0.8         2.0          2.4        N.A.               -0.5               -0.3
   for all manufacturing industries

Construction Labour and            -1.0   -1.2       -2.1         -2.7         -0.6       N.A.               2.2                -0.9
   Material Cost Index

Tender Price Indices :
   Public sector                   -0.3   -1.5        1.4         0.4          2.0        N.A.               -0.3               -4.5
      building projects
   Public housing projects       -10.0     3.5        7.7         3.4          7.3        N.A.               -1.3               -6.5




                                                            115
              Table 22 : Rates of change in Composite Consumer Price Index

                                                                                                                     (%)


                                       Weight       1996          1997   1998       1999      2000       2001      2002




All items                              100.0          6.3          5.8     2.8       -4.0      -3.8       -1.6      -3.0

Food                                   26.94          3.9          3.6     1.9       -1.8      -2.2       -0.8      -2.1
  Meals bought away from home          (16.86)       3.9           4.0     2.2      -1.2       -0.9      -0.3       -1.5
  Food, excluding meals bought         (10.08)       3.9           3.0     1.5      -2.8       -4.2      -1.7       -3.1
    away from home

Housing(a)                             29.17         10.2          9.2     4.7       -5.1      -8.2       -3.1      -5.7
  Private housing rent                 (23.93)      10.7           9.1     5.5      -6.1       -9.8      -2.9       -6.5
  Public housing rent                  (2.49)        8.3          13.5    -3.4       1.4        1.1      -8.3       -2.7

Electricity, gas and water              3.59          5.0          5.0     1.4       -0.4       3.6       -1.9      -7.0

Alcoholic drinks and tobacco            0.87          5.7          5.6     6.6        1.2      -0.9        3.3       2.4

Clothing and footwear                   3.91          8.3          8.4    -0.8     -20.6      -10.1       -4.6       0.7

Durable goods                           5.50          1.9          2.2     0.2       -6.3      -4.6       -7.1      -6.3

Miscellaneous goods                     4.78          2.7          5.4     2.6       -0.7       0.9        1.3       1.7

Transport                               9.09          6.2          4.0     3.9        0.5       1.0        0.4      -0.6

Miscellaneous services                 16.15          6.1          4.5     2.7       -1.3      -0.2        0.5      -2.3


Notes : From October 2005 onwards, the year-on-year rates of change in the Composite Consumer Price Index are derived
        from the 2004/05-based CPI series. For the earlier periods, the year-on-year rates of change are derived from the
        CPIs with old base period. The weights quoted in this table correspond to that in the new series.
        (a)     Apart from "Private housing rent" and "Public housing rent", the "Housing" section also includes
                "Management fees and other housing charges" and "Materials for house maintenance".
        (*)     Change of less than 0.05%.
        N.A. Not available.




                                                            116
         Table 22 : Rates of change in Composite Consumer Price Index (cont'd)

                                                                                                              (%)
                                                                                            Average annual
                                 Weight    2003   2004    2005          2006                rate of change:
                                                                                           10 years       5 years
                                                                 Q1       Q2    Q3     1995 to 2005 2000 to 2005

All items                        100.0     -2.6   -0.4     1.0   1.6      2.0   2.3              *            -1.3

Food                             26.94     -1.5    1.0     1.8   0.9      1.7   2.1             0.4           -0.3
  Meals bought away from home    (16.86)   -1.5    0.2     0.9   1.0     1.3    1.5            0.6            -0.4
  Food, excluding meals bought   (10.08)   -1.7    2.5     3.2   1.0     2.3    3.1              *            -0.2
    away from home

Housing(a)                       29.17     -4.8   -5.2     0.1   4.2      4.9   4.8            -1.0           -3.8
  Private housing rent           (23.93)   -6.3   -6.6    -0.1   5.0     5.9    5.7           -1.5            -4.5
  Public housing rent            (2.49)     9.1    2.5     0.2   0.1     0.1    0.1           N.A.              *

Electricity, gas and water        3.59      1.4   11.4     4.1   3.9      3.4   4.1             2.2            1.4

Alcoholic drinks and tobacco      0.87      0.1      *     0.4   -0.6    -5.9   -4.1            2.4            1.2

Clothing and footwear             3.91     -2.7    6.4     2.0   -2.0    -0.7   1.7            -1.7            0.3

Durable goods                     5.50     -6.4   -2.2    -3.2   -5.8    -6.6   -6.9           -3.2           -5.1

Miscellaneous goods               4.78      2.3    3.6     1.5   0.4      1.8   1.9             2.1            2.1

Transport                         9.09     -0.4    0.4     1.4   1.6      1.1   0.2             1.6            0.2

Miscellaneous services           16.15     -3.2   -0.2     1.0   1.2      1.9   2.5             0.7           -0.9




                                                    117
                  Table 23 : Rates of change in implicit price deflators of GDP
                             and its main expenditure components
                                                                                                               (%)


                                               1996         1997        1998        1999        2000   2001   2002




Private consumption                                5.2        3.9         2.1        -5.2       -4.5   -1.0    -3.4
  expenditure

Government consumption                             6.5        6.4         2.6        -0.1       -1.9    1.1    -0.6
 expenditure

Gross domestic fixed                               2.0        6.0        -7.2         0.4       -3.8   -6.6   -10.1
 capital formation

Total exports of goods                          -0.7         -1.9        -3.3        -3.4       -0.5   -2.6    -2.9

Imports of goods                                -1.2         -1.9        -4.4        -2.6        0.8   -3.5    -4.2

Exports of services                                2.1        0.8        -5.1        -3.1        1.6   -4.3    -2.2

Imports of services                             -0.1          0.7        -3.6        -0.3       -0.3   -1.1    0.4


Gross Domestic Product                             5.8        5.6         0.2        -5.8       -5.6   -1.8    -3.5


Total final demand                                 1.7        1.3        -2.3        -3.7       -2.7   -2.6    -3.7

Domestic demand                                    4.9        4.5         0.4        -2.3       -5.0   -2.3    -4.9


Notes :     (#)       Figures are subject to revision later on as more data become available.
            (*)       Change of less than 0.05%.




                                                              118
                Table 23 : Rates of change in implicit price deflators of GDP
                       and its main expenditure components (cont'd)
                                                                                                          (%)

                                                                                        Average annual
                              2003   2004#   2005#             2006                     rate of change:
                                                                                        10 years       5 years
                                                           #          #        #
                                                      Q1         Q2       Q3                   #
                                                                                   1995 to 2005 2000 to 2005 #


Private consumption           -2.9    -0.5     1.4    1.9        1.6      1.6              -0.5           -1.3
  expenditure

Government consumption        -2.7    -2.9    -1.6    1.2        1.3      1.5               0.6           -1.3
 expenditure

Gross domestic fixed          -9.4     2.1     0.9    -2.0       3.1      6.3              -2.7           -4.8
 capital formation

Total exports of goods        -2.0     0.5    -0.1    -1.8       -0.7     -0.4             -1.7           -1.4

Imports of goods              -0.9     2.5     1.3      *        1.4      1.7              -1.4           -1.0

Exports of services           -3.4     0.4     3.5    4.8        5.4      5.1              -1.0           -1.2

Imports of services            2.6     4.0     0.9    -0.2       0.7      1.3               0.3           1.4


Gross Domestic Product        -6.4    -3.6    -0.2    -0.1       -0.1     -0.2             -1.6           -3.1


Total final demand            -3.0     0.4     0.8      *        1.0      1.1              -1.4           -1.6

Domestic demand               -4.5      *      0.8    1.1        2.0      2.1              -0.9           -2.2




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